The headlines have been dominated lately by one thing: rising
tensions in the Middle East and the looming question
of what will come next. The primary concern is that the exchange of attacks
between Iran and Israel could trigger a sharp rise in oil prices, especially if
Iran decides to block the Strait of Hormuz.
Around 30% of the world’s shipments of liquefied natural
gas and up to 20% of the world’s oil exports pass through this strait. Up to 20
million barrels of oil are transported through it every day, about one-fifth of
the world’s total supply. Thus, any disruption at this point will trigger
energy prices and hit the
S&P 500 index.
In such a scenario, some estimate oil prices could reach
$120 per barrel, while others expect a $200 mark. For now, though, despite the
situation remaining tense, oil prices have pulled back after an initial spike,
following reports that Iran is seeking to ease tensions and resume talks on its
nuclear program.
Another reason traders are not panicking is that any
disruption in the Strait of Hormuz would also hurt Iran, which relies heavily
on this route for its imports and oil exports. Moreover, a serious disruption
could draw in more global players, probably not in support of Tehran. So, it’s
unlikely they’d take such a move.
In addition, the IEA’s
latest forecast expects global oil production to
reach 104.9 million barrels per day in 2025, up 1.1 million from 2024, and 106
million in 2026. Meanwhile, demand is projected at 103.76 million in 2025 and
104.5 million in 2026, suggesting a surplus of 1.1 million barrels per day in
2025 and 1.5 million in 2026.
In short, despite the ongoing tensions between Iran and
Israel, markets don’t seem to believe the conflict will seriously disrupt the
global oil supply. The problem, of course, is that things can escalate fast.
What seemed unlikely yesterday can quickly turn into reality, hitting global
markets hard, including the S&P 500.
Take this, for example: if Israel were to strike all of
Iran’s oil terminals, oil prices could easily surge to $80–90 a barrel or
higher. Still, Morgan Stanley raised its Brent forecast for Q3 just by $10 to
$67.50 per barrel on the back of rising geopolitical risk — yet even that
revised figure points to lower prices overall.
That said, if the conflict deepens and energy prices surge
— not just briefly, but for a sustained period — it could trigger a new wave
of global inflation and sometimes tip weaker economies
into crisis. For now, though, markets aren’t pricing in that worst-case
scenario and continue to buy the dips.
This article was written by FL Contributors at www.forexlive.com.