US Strikes On Iran Come At Fragile Moment For The Global Economy

US strikes on Iran’s three main nuclear facilities come at a fragile moment for the global economy, and the outlook now hinges on how forcefully the Islamic Republic retaliates.The World Bank, the Organization for Economic Cooperationand Development and the International Monetary Fund have alldowngraded their global growth forecasts in recent months. Anysignificant increases in oil or natural gas prices, ordisturbances in trade caused by a further escalation of theconflict, would act as yet another brake on the world economy.“We’ll see how Tehran responds, but the attack likely putsthe conflict on a escalatory path,” Bloomberg Economics analystsincluding Ziad Daoud wrote in a report. “For the global economy,an expanding conflict adds to the risk of higher oil prices andan upward impulse to inflation.‎”The rising geopolitical risks intersect with a potentialescalation in tariffs in the coming weeks as President DonaldTrump’s pauses of his hefty so-called “reciprocal” levies aredue to expire. The biggest economic impact from a prolongedconflict in the Middle East would likely be felt via surging oilprices.Post the US strike, a derivative product that allowsinvestors to speculate on price swings in crude oil surged 8.8%on IG Weekend Markets. If that move were to hold when tradingresumes, IG strategist Tony Sycamore said he projects WTI crudeoil futures will open at around $80 per barrel. Much will hinge on near-term events. Iran’s ForeignMinister Abbas Araghchi said the US attacks are “outrageous andwill have everlasting consequences.” He cited the United NationsCharter on provisions for self-defense and said Iran reservesall options to defend its sovereignty, interest and people.Bloomberg Economics sees three options for Iran to respond:Attacks on US personnel and assets in the regionTargeting regional energy infrastructureClose the Strait of Hormuz maritime chokepoint usingunderwater mines or harassing ships passing through In the extreme scenario in which the Strait of Hormuz isshut, crude could soar past $130 per barrel, according to Daoud,Tom Orlik and Jennifer Welch. That could take US CPI near 4% inthe summer, prompting the US Federal Reserve and other centralbanks to push back the timing of future rate cuts. About a fifth of the world’s daily oil supply goes through the Strait of Hormuz, which lies between Iran and its Gulf Arab neighbors such as Saudi Arabia.The US is a net exporter of oil. But higher crude priceswould only add to the challenges the US economy is alreadyfacing. The Fed updated economic projections last week, markingdown its forecast for US growth this year to 1.4% from 1.7% aspolicymakers digested the impact on prices and growth of Trump’stariffs.As the largest buyer of Iranian oil exports, China wouldface the most obvious consequences from any disruption to theflow of petroleum, though its current stockpiles may offer somerespite.Any disruptions to shipping through the Strait of Hormuzwould have a significant impact on the global liquefied naturalgas market too. Qatar, which makes up around 20% of the global LNG trade,uses this route for exports and has no alternative passage. Thatwould leave the global LNG market extremely tight, pushingEuropean gas prices significantly higher, Bloomberg Economicshas noted.While investors may be concerned that supplies could beinterrupted if hostilities escalate, OPEC+ members, including defacto group leader Saudi Arabia, still have abundant sparecapacity that could be activated. In addition, the InternationalEnergy Agency may choose to coordinate the release of emergencystockpiles to try and calm prices.“The Middle East tensions represent another adverse shockto an already weak global economy,” Ben May, director of globalmacro research at Oxford Economics, said in a report ahead ofthe latest escalation. “Higher oil prices and the associatedrise in CPI inflation would provide central banks with a majorheadache.”.Trump’s Airstrikes On Iran Leave Oil Market Poised For Surge

US Strikes On Iran Come At Fragile Moment For The Global Economy

The World Bank, the Organization for Economic Cooperation and Development and the International Monetary Fund have all downgraded their global growth forecasts in recent months.

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US Strikes On Iran Come At Fragile Moment For The Global Economy

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