After Iran’s attack on Israel, oil prices could reach a multi-year-high according to some experts.
Oil prices could skyrocket in the following months after tensions between Iran and Israel reach an all-time high. CNBC-polled experts believe crude prices could hit the $120-130 per barrel range.
After a month-long bearish trend, Brent prices started ramping up again, breaking the $90 per barrel level last week, an almost 18% rise year-to-date. The West Texas Intermediate benchmark also rose 18% this year, breaking $84 per barrel.
On Saturday, Iran launched its strongest and most direct attack against Israel in history. Swaths of drones left Iranian territory and reached Southern Israel a few hours later. The Israeli government claimed to have intercepted 99% of the missiles.
The attack came in retaliation to Israel’s deadly strike against the Iranian embassy in Damascus, Syria, which left 16 people killed. Western intelligence warned about Iranian retaliation for days before Saturday’s attack.
It’s unclear if and how Israel will respond to Iran’s strike. Western media reported several conversations between US President Joe Biden and Israel’s Prime Minister Benjamin Netanyahu, with the former saying the US would not support any Israeli military response.
But tensions in the region are unlikely to cool down, especially as the Netanyahu cabinet still contemplates a ground attack on Rafah in the south of Gaza.
Oil prices and inflation
On Monday, oil prices dipped slightly, apparently unperturbed by the events of the weekend. However, experts are warning a new rally may be coming, especially if Israel decides to counterattack.
Iran has some of the world’s largest oil reserves and is the third largest producer in the Organization of Petroleum Exporting Countries (OPEC). Moreover, most of Iran’s oil is exported through the narrow Hormuz Strait, at the end of the Persian Gulf. Blocking the strait, and therefore the oil flow is a relatively easy feat for any modern war fleet.
Lipow Oil’s president Andy Lipow said “Any attack on oil production or export facilities in Iran would drive the price of Brent crude oil to $100, and the closure of the Strait of Hormuz would lead to prices in the $120 to $130 range.”
Crude prices could continue to rise anyway as Yemen’s Houthis, close allies of Iran, continue attacks on oil shipments passing through the Red Sea. Yemen also took part in Saturday’s attacks against Israel.
Meanwhile, global oil supplies have tightened as Russia and Saudi Arabia implement a strict production cut. Russia halted gasoline exports for six months starting on March 1st.
When all combined, geopolitical tensions make oil price spikes almost inevitable. And that, in turn, may cause a comeback of inflation.
