AhlulBayt News Agency: While only ten days have gone since the US-Israeli aggression against Iran, the repercussions of this warmongering have plunged the global economy into a deep crisis. Even if hostilities were to cease now, there is little hope for a quick recovery from the devastating effects of this turmoil in the short run.
On Monday and after reopening of the global markets, the energy prices surged. Brent oil touched $111 per barrel. The US oil also grew $17 to reach $110.
The sharp increase in oil prices is primarily driven by concerns over a potential escalation in the supply crisis from the West Asia region to the global market. Both the transit of tankers through the Strait of Hormuz has significantly decreased, and several oil facilities in the Persian Gulf have been damaged in the ongoing conflict between Iran and the US-Israeli camp.
Major producers like Saudi Arabia, the UAE, Iraq, and Kuwait have either reduced their production or temporarily shut down certain oil and gas fields. Reports indicate that crude oil production from southern Iraq’s fields has plummeted by 70 percent since the onset of the war, bringing the average daily output down to 1.3 million barrels, a stark decline from the pre-war level of 4.3 million barrels per day.
Despite global concerns over rising oil prices, American President Donald Trump, who is considered a key instigator of this worldwide crisis, attempted to downplay the situation, characterizing the price hikes as momentary and short-term shocks. Facing mounting pressure from rising oil prices, Trump reacted with evident frustration, claiming: “Short-term oil prices will quickly fall following the end of Iran’s nuclear threat. This is a very small price to pay for the security and peace of America and the world. Only fools think differently.”
Experts, however, believe that the implications of rising energy prices will linger and affect the global economy for the long term. This sudden price increase comes at a time when the Strait of Hormuz remains open but oil tankers have halted their passage due to the ongoing hostilities.
Last week’s spike in oil prices has had global repercussions and poses a significant threat of inflation that could inflict long-lasting damage on economic growth worldwide. Major energy consumers like China, India, South Korea, Japan, Germany, Italy, and Spain are now acutely vulnerable to price shocks.
Given the extensive nature of this crisis, there appears to be no short-term solutions to navigate through this unrest. Some oil-consuming nations are attempting to mediate and pressure Washington to cease hostilities in the region, hoping to prevent the situation from further exacerbating the global economy, as the continuation of this conflict could have irreversible consequences for energy importers.
West in oil price shock
Halting oil shipments from the Strait of Hormuz more affects the US partners than the oil producers. Western countries as the main importers of oil and gas are panicked by the energy price rallying.
The finance ministers of the G7 in their emergency meeting on Monday aimed at countering the increase in the oil prices discussed potential release of their strategic oil reserves in coordination with the International Energy Agency.
The 32 member countries of the International Energy Agency hold strategic reserves as part of a collective emergency system designed for oil price crises. A source told the Financial Times that some US officials believe that a joint release of 300 to 400 million barrels, 25 to 30 percent of the 1.2 billion barrels available in these reserves, would be appropriate.
The energy crisis stemming from the US and the Israeli regime’s attack on Iran is also reflected in petrol stations worldwide. Images released from Spain show long lines at gasoline stations.
Following the rise in Brent crude prices and the subsequent increase in gasoline costs, American citizens are now feeling the direct pressure of the war. Reports indicate that gasoline prices in the US have reached nearly $5 per gallon, with some fuel stations even charging up to $8, marking the highest rates seen in recent years.
Stock markets crashing
Crisis is not just affecting the energy market. The other economic parts are also being hit. The US and Asian stock markets on Monday fell reacting to surging oil prices. According to future indicators, US stock markets faced significant losses, raising concerns about heightened stress in the financial market. The value of the Dow Jones dropped by 851.6 points, or 2 percent. The values of the S&P 500 and Nasdaq also fell by 1.73 percent and 1.65 percent, respectively, reflecting ongoing worries about shocks in the energy market and rising inflation in the US.
The Nikkei 225 index in Japan decreased by over 7 percent, recording two-month lows. This index also fell by more than 5 percent last week.
The KOSPI index in South Korea dropped over 8 percent in early trading, causing a 20-minute suspension of trading.
The Shanghai Composite and CSI 300 indices in China each fell by 2 percent, while the Hang Seng index decreased by 3.5 percent.
The S&P/ASX 200 index in Australia dropped by 4 percent, and the Straits Times index in Singapore also decreased by 3 percent. According to CNBC reports, futures related to India’s Nifty 50 index fell by more than 2 percent.
As oil and gas prices continue to rise, economists warn that the prolonged conflict could sideline previous forecasts for economic growth. In this context, Kristalina Georgieva, the managing director of the International Monetary Fund, stated that a 10 percent increase in energy prices has raised global inflation by 40 basis points and reduced the global economic growth rate by 0.1 to 0.2 percent.
Bloomberg Economics estimated that a 1 percent decline in supply would push oil prices up by about 4 percent. The Oxford Economics institute also reported that inflation rates at the end of the year in Britain and the Eurozone are expected to be around 0.5 to 0.6 percentage points higher than previously anticipated.
Food prices rally worldwide
The disruptions in crude oil supply due to the conflict in the region have increased the attractiveness of biofuels derived from agricultural products, leading to a higher demand for vegetable oils and corn.
The palm oil price has had the sharpest rise since Indonesia, as its biggest producer, in 2022 ceased its exports. The future contracts in Chicago for soy oil as the closet replacement for palm oil have kept increasing for the 11th day, recording the longest increase rate since 2008.
Futures trading for wheat also increased by more than 3 percent on Monday after registering its largest surge since 2024, while corn rose by over 2 percent and soybeans also saw an increase.
Joe Davis, manager at Future International brokerage, stated: “Grain and oilseed markets in early Monday trading are following energy prices. Macro and energy markets will continue to drive agricultural commodities in the event of any escalation in the conflict against Iran.”
Given that oil prices have negatively impacted all financial markets, some experts believe that this crisis will have widespread effects on the global economy in the long term. According to these analysts, the increasing costs of transportation and energy will be quickly reflected in the final prices of goods and will spread like a wave across global markets. Just as a price change in an important market quickly transfers to other markets, here too, an increase in costs at one point could lead to a rise in the overall price level across the global economy.
Observers note that if energy prices increase by even 10 to 20 percent, the resilience of European and American economies will be severely pressured. In many of these countries, household income and expenses are nearly balanced, and rising energy costs could exert significant pressure on people. The experience of the Russian gas cuts for some European countries indicated that their resilience to such shocks is not significantly high.
Experts warn that if war in the Persian Gulf continues, the oil prices can even go beyond $150 per barrel, potentially inflicting a big shock on the world economy. Oil shock is not usually just driven by demand and supply, rather it is a psychological and economic shock that unleashes a wave of inflation to the world economy which is hard to recover from, unless tensions stop completely.
Overall, by waging a war against Iran, the US and Israeli regime ignited a fire whose flames will affect the whole world markets and recovering from this crisis may take months or even years.
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