In response to Donald Trump’s attack on Iran, the Iranian parliament voted to close the crucial Hormuz shipping channel,
raising concerns that a sudden spike in oil prices could trigger a worldwide recession.
After rising more than 10% since mid-June, when Israel’s attack on Iranian nuclear sites prompted missile strikes from Tehran against Tel Aviv, a barrel of Brent crude was trading at roughly $77 on Friday.
However, Trump’s choice to follow Israel by attacking Iran with has sparked a series of events
that experts caution could push prices higher when markets open on Sunday at 11 p.m. UK time.
The strait of Hormuz, a gateway out of the Persian Gulf, is where a fifth of the world’s oil consumption passes.
Since Iran’s supreme national security council has the final say, the vote, as reported by Reuters, is not legally binding.
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But even before the outcome of the vote was known, analysts were forecasting a $5 spike.
What Will Happen If Iran Successfully Closes The Hormuz Channel?
“An oil price jump is expected,” said Jorge León, the head of geopolitical analysis at the energy intelligence firm Rystad and a former official at Opec, the group of major oil-producing nations.
“In an extreme scenario where Iran responds with direct strikes or targets regional oil infrastructure, oil prices will surge sharply.
Even in the absence of immediate retaliation, markets are likely to price in a higher geopolitical risk premium.”
Meanwhile, Brent crude, the traditional benchmark global oil price, could gain $3 to $5 a barrel when markets open, Ole Hvalbye, an SEB analyst, said in a note.
JP Morgan has also previously forecast that the oil price could rise as high as $130
in the event that a sustained Middle East conflict closes the strait of Hormuz for an extended period.
Furthermore, recall that Iranian officials have said they would block the strait if Tehran’s interests were threatened.
A prolonged closure could have huge knock-on effects for the global economy.
An oil price shock would risk a period of high inflation,
as motorists pay more for petrol and the cost of transporting goods soars.
Meanwhile there have been several calls from both US and UK to China, asking that the country intervenes against closing the Hormuz