October 13th 2023, 3:46:52 pm

(about 2 months ago)

Will the war break oil and stock markets?

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The sudden eruption of war in the Middle East is adding to the speculation that oil prices might jump higher. Although so far there is no imminent threat to oil supply, the war might escalate to other regions. 

Iran has been known to back the group that launched the attacks against Israel and any retaliatory act against Tehran could lead to disruption of global oil supply. Iran can disrupt the Strait of Hormuz, a vital artery for oil shipments.

The crude oil supply has already shrunk in the past months after the cutbacks by Saudi Arabia and Russia which pushed oil prices to over $100 shortly last month.

The OPEC group has implied that the war will not affect their decisions. Still, if Israel attacks any infrastructure of Iran, oil prices could jump, a scenario that could unfold very sharply.

Iran's oil supply is currently at a five-year high after the negotiations and easing of sanctions on Iran which allowed them to import more oil to China. Increased Iranian supply has contributed to moderating oil prices in 2023. Restricting the exports by the West could impact oil prices.

In a more severe scenario, the Strait of Hormuz allows 17 million barrels of crude to move every day and any disruption could severely impact the oil prices.

The markets in the US and Canada are already struggling with the higher for longer rates and if there is any shock to energy prices so will be inflation and any hope to see rates coming down any time soon will evaporate.