Oil prices could more than double to $150 a barrel if war breaks out between the US and Iran, economists warned last night.
The US drone strike that killed Iran’s top military general Qassem Soleimani sent shock waves through financial markets.
Fears that tensions in the Middle East could cut off one of the world’s most important energy supply routes pushed up the price of Brent crude by as much as 5 per cent – hitting $69.50 a barrel.
Fears that tensions in the Middle East could cut off one of the world’s most important energy supply routes pushed up the price of Brent crude by as much as 5 per cent
It eased back later, but was still up 2.8 per cent at $68.13 in the late afternoon.
A fifth of world’s oil supply passes through the Strait of Hormuz, a narrow choke point between Iran and the Arabian Peninsula.
This is vital for international energy markets, and prices can react to even the slightest escalation of hostilities in the region.
As Tehran vowed ‘crushing revenge’ against Washington, Caroline Bain of Capital Economics warned of a massive rise in oil prices.
She said: ‘Mounting geopolitical tensions between the US and Iran have prompted fears of a full-blown military war in the Gulf.
‘The most important impact would clearly be the loss of life. From the perspective of the energy market, if war were to break out, we estimate that the price of oil would quickly surge to around $150 per barrel following the outbreak of hostilities.’
Yesterday’s jump marks the biggest spike since an attack on Saudi Arabia in September, which Washington blamed on Iran, caused prices to surge 20 per cent in a day.
Bain said: ‘There has been no damage to the physical supply of oil so it’s very different to September’s attack. It’s all about the risk.’
Motoring group the RAC warned petrol prices are already likely to rise quickly by 2p a litre – around £1 a tank – if the situation does not calm down.
The attack, and the prospect of rising oil prices, affected Britain. BP and Shell shares both rose. Fears that the cost of fuel could go up dragged on the shares of airlines Easyjet and British Airways owner IAG.
Shares on Wall Street dipped, with the Dow Jones down 0.7 per cent, while Germany’s blue-chip index was down 1.25 per cent.
US figures yesterday showed it exported a record 4.5m barrels of oil a day last week, reducing its vulnerability to oil price spikes.