The conflict between Iran and the United States and Israel is impacting global oil prices, pushing Brent crude above $100 a barrel, but the broader macroeconomic effects will depend on the duration of the fighting, analysts say. The escalation marks a significant turn in Middle Eastern tensions, with potential ramifications for global energy markets and economic stability.
According to an analysis by BNP Paribas, the conflict in Iran “is already having a significant impact on energy prices, particularly oil and gas,” leading to expectations of increased inflation in March. “the outlook will depend on how the conflict evolves, but the situation remains highly uncertain,” the analysis states, adding that most scenarios foresee at least a temporary adverse impact.
BNP Paribas has outlined three potential scenarios. The first anticipates a return to market normalcy within weeks. The second predicts a prolonged period of uncertainty in Iran, with moderate but sustained increases in oil prices. The third involves an escalation that includes a blockade of the Strait of Hormuz, potentially driving Brent crude to a peak of $130 per barrel in the second quarter, which would represent a stagflationary shock – slower growth coupled with higher inflation.
Xtb analysis also noted that oil prices “are rising sharply following attacks on Iranian oil infrastructure and retaliatory measures that have exacerbated the conflict.” West Texas Intermediate (WTI) is reportedly up more than 15% to $104.50 per barrel, reaching as high as $117, while Brent is experiencing a similar surge to $108 per barrel.
“The upward reaction in prices reflects fears of a major supply shock following the effective closure of the Strait of Hormuz,” Xtb indicated, adding that approximately 20 million barrels of oil per day pass through this vital waterway. The potential disruption to this key shipping lane is a major driver of current market anxieties.
Analysts anticipate a highly intense week, “not only because of the macroeconomic calendar, but also due to increased tensions in the Middle East.” The increase in oil prices since the start of the conflict has increased inflationary pressure, and the return of inflation problems is “currently one of the biggest concerns of the market.”
Vladimir Oleinikov, senior quantitative analyst at Generali AM, also highlighted in an analysis that markets are entering another week conditioned by events in the Middle East. “After the recent appointment of the new ‘ayatollah’ in Iran, and against the intentions of the United States, markets are starting the week discounting that the war in the Middle East will be prolonged,” which “is already reflected in the main asset classes, and very especially in Brent oil, which has already exceeded $100/barrel, a level it has not reached for a long time.”
The analyst also noted that historically, “energy-related shocks typically cause only short-lived declines in the stock market.” In the two months following such events, American and East African stocks have fallen by an average of 3.5% and 4.6%, respectively, with maximum declines of 4.5% and 8.6%, but after that initial period, performance tends to recover and “in three months, returns were already positive.”
Ricardo Evangelista, CEO of ActivTrades Europe, pointed out that the conflict has entered its second week and there is no clear path or predictable timeline for a ceasefire, so “We see not surprising that oil traders are incorporating a future scenario of reduced supply into prices, which is resulting in higher prices.”
“This dynamic will tend to intensify the longer the conflict lasts without a realistic prospect of resolution, creating room for further increases in the price of the barrel,” he warned. Henrique Valente, analyst at ActivTrades Europe, highlighted that investors are also paying attention to the G7 meeting, and that, in an attempt to contain the rise in oil prices, the G7 finance ministers announced they will meet today to discuss a possible release of strategic reserves.
Lusa
