- Gita Gopinath warned oil could reach $140-$160 per barrel by end of June if disruption lasts
- She said a spike would severely damage the global economy and heavily impact India
- Oil prices won't return to pre-conflict levels soon due to damaged production facilities
Gita Gopinath has warned that crude oil prices could surge to as high as $140-$160 per barrel by the end of June if the ongoing Iran-related disruption continues for another month, triggering what she described as a major negative shock for the global economy, especially for India.
Speaking to NDTV on the impact of the conflict, Harvard professor and former IMF Chief Economist said the scale of supply disruption compared to the reduction in demand could push oil prices sharply higher if the deadlock persists.
“If this disruption continues for another month, oil will be at $140-$160 per barrel by end of June,” she told NDTV's Senior Managing Editor Vishnu Som, adding that markets are currently banking on a near-term resolution because the US administration is not expected to want a prolonged crisis. “There is a lot of hopeful thinking, but there is no confirmation,” she noted.
According to Gopinath, a spike to those levels would severely hurt both the global economy and India, which relies heavily on the Middle East for energy imports.
She also cautioned that even if the conflict is resolved soon, oil prices are unlikely to return to pre-conflict levels quickly because production facilities have been damaged and restoring output will take time.
ALSO READ: Brent Slumps 8% To Intraday Low, US Crude Below $100 As Iran Confirms Truce Talks Underway
“We are not getting back to $65 a barrel that was there before the conflict,” she said, adding that the best-case scenario could still see crude at around $85 per barrel by the end of the year.
Gopinath warned that if oil reaches $140 per barrel, it could trigger significant demand destruction and inflict deeper damage on the world economy. “The only hope is that we don't go to $140,” she said.
On the policy response, Gopinath said the right reaction to a sharp rise in oil prices would be to cut back usage, which would require higher prices to be passed through to consumers to some extent.
She said governments may not pass the entire increase on to households, with some burden likely absorbed through fiscal support, but cautioned against excessive subsidies if the conflict drags on.
“The risk right now is the duration of the conflict. Even if it is solved, it won't be resolved for two-three months,” she said. “If you start providing a lot of support right now, then the fiscal bill is going to grow very, very large.”
Instead, she suggested that governments provide targeted support, including cash transfers for lower-income households, while still allowing some pass-through of higher fuel prices.
Calling the situation the “biggest supply shock ever faced by the world,” Gopinath said the disruption would create hardship across economies, particularly in India due to its dependence on energy imports from the Middle East.
She added that rising oil prices are also putting pressure on the rupee, but argued that allowing the currency to adjust naturally could help reduce imports and support exports over time.
“With depreciation of the rupee, it signals lower imports,” she said, explaining that higher prices naturally curb import demand while export competitiveness could improve gradually.
Gopinath also warned against artificially supporting the rupee, saying investor confidence could weaken if the currency is not aligned with economic fundamentals.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.