How Strait of Hormuz disruption could harm the economy
The situation in the Middle East remains fluid and it remains to be seen how durable the ceasefire between Israel and Iran will be. Events are yet to affect oil production or its supply to global markets but the risk of disruption to shipping in the Strait of Hormuz triggering a spike in the oil price has grown.
In this report, we look into the potential impact of such disruption. We model a downside scenario where ceasefire negotiations break down and Iran attempts to disrupt trade with mines and attacks on shipping. The combination of reduced oil supply, higher shipping costs, plus a surge in the geopolitical risk premium could trigger a spike in oil prices. We estimate prices would average $115 per barrel in Q3, before falling back to $75 by mid next year. This, along with higher gas prices and supply chain disruption, would lift inflation in the US to 5.5% and in the Eurozone to 3.5%. The shock would cause US GDP to flatline in H2, while the real income squeeze would likely result in Eurozone and Japan GDP contracting over the same period.
Download the report to uncover our answers to these key questions regarding the Iran-Israel conflict:
- How likely is it that Iran will stop shipping through the Strait?
- What would be the impact on energy prices?
- What would be the economic spillovers?
