More analysts and credit ratings agencies are weighing in on the implications of the escalating conflict between Israel and Iran on the MENA region and for the global economy at large — and while there is some lack of clarity over what might happen, the question is currently not whether there will be impacts, but how significant they will be.

The oil market could be particularly affected by the conflict, with Fitch Solutions’ research unit BMI saying in a webinar attended by EnterpriseAM that “all options are on the table” both for the conflict and for its impact on oil prices in the near term. BMI laid out a number of possibilities for oil prices by 3Q:

  1. Iran conducts limited attacks and a new nuclear agreement is reached, which would lead to crude oil being priced at USD 60-65 per barrel;
  2. Iran’s missile programs are weakened and the US does not pursue a new nuclear agreement, which would lead to crude oil barrels being priced at USD 60-70 per barrel;
  3. Israel and Iran engage in retaliatory strikes before eventual de-escalation, keeping prices elevated at USD 70 per barrel before stabilizing at between USD 60-80;
  4. Retaliatory exchanges between Israel and Iran lead to military confrontation with the US, leading to prices of USD 75-100;
  5. The situation develops into a broader conflict that pits the US directly against Iran, bringing prices up to around USD 100-150 should a closure of the Strait of Hormuz take place.

Oil supply could remain stable in the next few months: “So long as oil exports of producers in the region remain unaffected, the global oil market is set to be well supplied over the next few months on the back of OPEC+’s well-documented pivot towards a faster unwinding of voluntary output cuts,” Capital Economics’ James Swanston wrote in a research note seen by EnterpriseAM.

Where oil prices are trading currently: Brent Crude rose to a five-month high on Tuesday on speculations that the US might attack Iran, reaching USD 76 a barrel. Oil options volumes soared on Monday, with traders snapping up bullish Brent calls at USD 80 and USD 100. Brent’s futures curve steepened into backwardation, suggesting fears of near-term supply shocks, especially if tensions escalate toward the Strait of Hormuz, through which 17 mn barrels per day of oil pass.

As things stand, Gulf countries stand to benefit: “The Gulf economies benefit for the time being from higher production and oil prices. The greater negative impact will be felt on the economies of Egypt and Jordan,” Swanston said. This notion was seconded by Fitch’s Head of MENA Country Risk Ramona Moubarak, who said in the webinar that as long as the conflict remains confined to Iran and Israel, GCC economies will only be affected by the air of uncertainty, while benefiting from the higher oil prices.

The key determining factor will be the Strait of Hormuz: Iran following through on its threats to close the Strait of Hormuz could lead to the cutting off about 30% of the world’s daily oil supply and 20% of global LNG trade, according to a fact sheet (pdf) by the International Energy Agency based on data between January and October 2023. Closing the strait and cutting off key energy exporters Iran, Iraq, Kuwait, Saudi Arabia, and the UAE from the global market has the potential to completely disrupt global energy supply chains and violently ramp up energy costs.

“The risk of a ‘closure’ of the Strait of Hormuz is more nuanced than some might suggest, not least because Iran relies on the Strait to export its energy flows,” Swanston argued, adding that it seems unlikely Iran would cause long-term disruption to the Strait, given the implications not only for the West but for allies including China.

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