The escalation of tensions in the Middle East and the "de facto" halt of traffic in the Strait of Hormuz have led to rising oil prices, and it is estimated that if these prices remain at the level of $100 for a year, a $500 billion shock could occur in the global economy, according to the chief economist at Fitch Ratings on Wednesday.
As the attacks launched by the U.S. and Israel against Iran on Feb. 28 and Iran’s retaliations continue into their third week, the Strait of Hormuz remains "de facto" closed for commercial ships linked to these countries.
The near standstill of crude oil and petroleum product trade through this strategic passage, through which approximately 20 million barrels per day (bpd), or 20% of global oil demand, is transported, has deepened supply concerns in oil markets and led to sharp price increases.
The International Energy Agency (IEA) has projected that, as of this month, around 10 million barrels of oil per day will be taken offline due to reduced supply in the Gulf, stating that this represents "the largest supply disruption in the history of the global oil market."
The futures price of Brent crude, considered the international benchmark, closed at $73.01 on Feb. 27, the last trading day before the attacks, but rose to as high as $114.3 during this period of ongoing attacks, reaching its highest level since June 29, 2022.
During this period, Brent crude has followed a volatile course depending on the flow of news from the region and is currently trading around $100 per barrel.
The supply constraint in the oil market is causing disruptions in global supply chains, while the sharp rise in prices is increasing inflationary pressures and threatening economies.
Prices could fall if strait reopens
According to an analysis by the international credit rating agency Fitch Ratings, stable global economic growth of 2.6% is expected this year if the increase in oil prices does not last long.
However, in the "adverse scenario" where oil prices remain at $100 per barrel, there is a high risk of a significant global supply disruption.
Fitch Ratings Chief Economist Brian Coulton stated in his assessment to Anadolu Agency (AA) correspondent that if the increase in oil prices and supply constraints persist for a long time, inflation could rise sharply and a noticeable slowdown in economic growth could occur.
Stating that, according to baseline scenarios, this increase in oil prices is "relatively short-lived," Coulton said: "However, if oil prices remain at $100 for a year, global gross domestic product (GDP) could be half a percentage point lower after four quarters. This would mean a $500 billion shock."
Coulton noted that, for now, he believes the effects of the conflict in the Middle East on the global economy are "most likely temporary," adding that there was a supply surplus in the oil market before the conflict and that prices could fall quite rapidly once the Strait of Hormuz reopens.
On the other hand, he pointed out that, in addition to energy, the Gulf region is also a significant supplier of many inputs for food, chemicals, and other manufacturing production, and therefore increases in commodity prices are also being observed.
Exports in Gulf taking hit
According to the latest analysis by ING Think, energy markets are having to continuously price in the possibility that the disruption in oil and gas flows through the Strait of Hormuz could last longer.
There are very few signs that tensions will ease or that the flow of oil and liquefied natural gas (LNG) through this critical chokepoint will resume.
According to an analysis by David Butter, an analyst for the Middle East and North Africa Programme at Chatham House, Gulf producers whose economies are largely dependent on oil and gas revenues are paying a heavy price due to lost income, while importing countries in the region are also facing pressures stemming from rising fuel costs and losses in foreign currency revenues.
It is estimated that Qatar, which halted production following an attack on its LNG facility, will face a financial loss of at least $4 billion due to a one-month disruption in exports.
In Iraq, the economy with the highest dependence on oil in the Gulf region, a large portion of crude oil exports, accounting for approximately 90% of budget revenues, is transported from the Basra Oil Terminal through the Gulf and the Strait of Hormuz.
It is anticipated that a prolonged loss of this income could make it difficult to pay public sector salaries and pensions, which make up more than half of budget expenditures.