Latest news with #oilprices
Forbes
an hour ago
- Business
- Forbes
How Oil Price Shocks Drive Economic Growth: Iran War Impact Analysis
Oil prices climbed over 4% on Tuesday as the Iran-Israel conflict raged with no end in sight, with Brent crude futures reaching a six-month high of $74/bbl. This latest spike underscores a fundamental economic reality: oil remains the lifeblood of global commerce, and its price volatility continues to be one of the most potent forces shaping economic growth patterns worldwide. The relationship between oil prices and economic growth is both direct and complex. When oil prices rise sharply, they act as a tax on economic activity, increasing input costs across virtually every sector of the economy. Transportation, manufacturing, agriculture, and consumer goods all face higher costs, which can dampen economic expansion and fuel inflation. Conversely, falling oil prices can stimulate growth by reducing costs and freeing up consumer spending power. The past five years have provided a masterclass in oil market volatility and its economic consequences. The most dramatic episode occurred during the COVID-19 pandemic when the West Texas Intermediate (WTI) crude oil futures price fell to a negative value for the first time on April 20, 2020. This unprecedented event reflected the complete collapse in demand as lockdowns brought economic activity to a standstill. The pandemic's impact on oil markets was swift and severe. Global travel restrictions, factory shutdowns, and stay-at-home orders eliminated millions of barrels of daily oil demand almost overnight. Storage facilities filled to capacity, creating the surreal situation where oil producers had to pay buyers to take their crude off their hands. However, the recovery was equally dramatic. As economies reopened and demand surged back, oil prices rebounded sharply. The price of crude oil was already inflated even before the war due to higher demand fueled by the recovery of global economies from the COVID-19 pandemic and low investment in the oil and gas industry. This recovery set the stage for the next major oil shock. When Russia invaded Ukraine on February 24, 2022, oil markets experienced another seismic shock. On March 7, 2022, the WTI crude oil futures price reached 133.460 US dollars per barrel, and the Brent crude oil futures price reached 139.130 US dollars per barrel, the highest price since July 2008. The war's impact was particularly severe because Russia is the third-largest petroleum and liquid fuels producer in the world, after the United States and Saudi Arabia. Research indicates that the war and its chain events caused the West Texas Intermediate (WTI) crude oil prices to increase by $37.14, a 52.33% surge. The conflict demonstrated how geopolitical events can instantly reshape global energy markets. Western sanctions on Russian energy exports created supply disruptions and forced a massive reorganization of global oil trade flows. European countries, heavily dependent on Russian energy, were forced to seek alternative suppliers, driving up global demand and prices. The latest oil price surge stems from the escalating conflict between Iran and Israel, which erupted into direct warfare in June 2025. Israel launched a series of air strikes on targets in Iran on 13 June and Tehran retaliated, marking the most severe conflict between the two countries, with energy infrastructure also targeted for the first time. The market's reaction has been swift and significant. Brent crude futures settled at $76.45 a barrel, $3.22, or 4.4%. U.S. West Texas Intermediate crude finished at $74.84 a barrel, up $3.07 or 4.28%. The concern centers on potential disruptions to oil flows through the Strait of Hormuz, a conduit for one-third of the world's seaborne oil supplies, channeling roughly 21 million barrels every day. What makes this conflict particularly alarming for energy markets is its direct impact on production facilities. Iran's oil exports appear to have essentially ground to a halt in recent days. Total Iranian crude and condensate oil exports this week are currently forecast to reach 102,000 bpd, compared with a weekly average of 1.7 million so far this year. Oil price shocks have far-reaching consequences for economic growth that extend well beyond the energy sector. When prices spike, they create multiple channels of economic impact: Inflation Pressure: Higher oil prices directly increase transportation and production costs, which flow through to consumer prices. This creates inflationary pressure that can force central banks to maintain higher interest rates, potentially slowing economic growth. Consumer Spending: Rising gasoline prices effectively reduce disposable income for consumers, particularly lower-income households who spend a larger proportion of their income on energy. Oil prices could surge from a current level of about $73 per barrel up to $120 per barrel if the Israel-Iran conflict damages Iranian oil infrastructure, which would result in a proportionate hike for gas prices. The average price of a gallon of gas would climb above $5. Business Investment: Uncertainty about future energy costs can delay business investment decisions, particularly in energy-intensive industries. Companies may postpone expansion plans or capital investments when faced with volatile energy costs. Trade Balances: Oil-importing countries see their trade balances deteriorate when prices rise, while oil-exporting nations benefit from increased revenues. This redistribution of wealth globally can affect currency values and international capital flows. Vehicles jam a highway as a fire blazes nearby in the oil depots of Shahran, northwest of Tehran, on ... More June 15, 2025. Israel and Iran exchanged fire on June 14, a day after Israel unleashed an unprecedented aerial bombing campaign that Iran said hit its nuclear facilities, "martyred" top commanders and killed dozens of civilians. (Photo by ATTA KENARE / AFP) (Photo by ATTA KENARE/AFP via Getty Images) The trajectory of oil prices and their economic impact remains highly uncertain. Iran has asked intermediaries to push President Donald Trump to pressure Israel into a ceasefire, which could potentially ease tensions and reduce the current risk premium in oil prices. The past five years have demonstrated that oil price volatility remains a critical factor in global economic stability. From the unprecedented negative prices during COVID-19 to record highs during the Russia-Ukraine war and now the Iran-Israel conflict, oil markets continue to be a barometer of global stability and a key driver of economic growth patterns. For policymakers and businesses, the lesson is clear: oil price volatility is not just an energy market phenomenon but a fundamental economic force that requires careful monitoring and strategic planning. As geopolitical tensions persist and supply chains remain vulnerable to disruption, the relationship between oil prices and economic growth will continue to be one of the most important dynamics shaping the global economy. The current Middle East crisis serves as yet another reminder that in an interconnected world, regional conflicts can quickly become global economic challenges, with oil markets serving as the primary transmission mechanism for economic shocks worldwide.
NHK
2 hours ago
- Business
- NHK
Japan to take extra measure to curb gasoline prices amid Israel-Iran conflict
Japan's government says it will act to curb spikes in retail prices for gasoline that could occur due to the fighting between Israel and Iran. The government says it will subsidize oil wholesalers so that the cost of regular gasoline at the pump will hover around 175 yen, or about 1.2 dollars, per liter even if crude prices surge. It says it will also provide the same level of subsidy for light oil, roughly half of it for kerosene and heavy oil, and about 40 percent for aviation fuel. The government says the arrangement will be in place for some two months from June 26. It says it will use an existing fund to finance the measure. The move comes on top of a fixed-amount subsidy to oil wholesalers already in place. That program began last month to stem gasoline prices and counter rising prices. The amount of subsidy has gradually increased to 10 yen per liter.
ABC News
2 hours ago
- Business
- ABC News
Markets live: ASX to drop at open, oil prices rise as Israel continues strikes on Iran
The Australian share market is set to fall when trading begins. Wall Street was closed overnight due to the Juneteenth public holiday. Meanwhile, oil prices rose 3 per cent as Donald Trump considered a US attack on Iran "within the next two weeks". Follow the day's financial news and insights from our specialist business reporters on our live blog. Disclaimer: this blog is not intended as investment advice.
Daily Mail
2 hours ago
- Business
- Daily Mail
War in Middle East 'to push oil price to $100': Experts sound alarm as Israel and Iran trade blows
Oil soared towards $80 a barrel yesterday as industry experts warned conflict in the Middle East could send it above $100. Brent – the global benchmark – reached a five-month high above $78 a barrel as Israel and Iran exchanged missile attacks. And if passage through the Strait of Hormuz – a shipping route in the Persian Gulf for 20 per cent of the world's oil – is cut off, the price could rocket higher. The Bank of England sounded the alarm yesterday over surging oil prices, which threaten to drive inflation higher, in its interest rates decision. Rate-setters noted that prices had risen 'owing to an escalation of the conflict in the Middle East'. And the Bank's Monetary Policy Committee said it 'would remain vigilant about these developments and their potential impact on the UK economy'. It presents a headache for motorists as rising oil prices will feed through to the cost of fuel. A $2 increase usually adds 1p to the price of a litre, according to the AA. But average rises are still less than a penny for petrol and diesel, the motoring association said. 'A spike in the oil price looks daunting but it is taking its time to filter through to drivers,' AA spokesman Luke Bosdet said. Analysts at Goldman Sachs predict Brent could reach $90 a barrel and Barclays claimed, in the 'worst-case scenario' of a wider war, it could pass $100. Shares in BP and Shell rose 1.7 per cent and 1.2 per cent respectively on hopes that higher oil prices will boost profits. Former BP chief executive Lord Browne said the trajectory for prices 'depends [on] what happens in the Strait of Hormuz, but if we really do shut down global supply then the price will go up a lot'. 'A lot of the price is controlled by fear, fear that Iran will do something different... I think there'll be a lot of volatility short-term,' he told LBC. And Shell chief executive Wael Sawan said: 'The escalation in tensions has added to what has already been significant uncertainty in the region. 'We're being very careful with, for example, our shipping in the region, just to make sure that we do not take any unnecessary risks.' At an industry conference in Tokyo, he said 'the Strait of Hormuz is the artery through which the world's energy flows and if that artery is blocked, for whatever reason, it'll have a huge impact on global trade.' Sawan said that the rise in oil and gas prices has been 'moderate' as investors wait to see whether physical infrastructure might be damaged. The company is monitoring the possibility of US military action and has plans in place should things deteriorate, he said. Uncertainty over whether Donald Trump will intervene on behalf of Israel has raged after the US President told reporters this week: 'I may do it. I may not do it... nobody knows what I'm going to do.'
Reuters
4 hours ago
- Business
- Reuters
Citi sees oil prices of $75-$78/bbl if war disrupts 1.1 mln bpd of Iran's oil exports
June 19 (Reuters) - An escalation of the Iran-Israeli hostilities could keep Brent oil prices trading about 15% to 20% above pre-conflict levels if the war disrupts 1.1 million barrels per day (bpd) of Iranian oil exports, analysts at Citibank said on Thursday. "This implies Brent prices should be in the $75 to $78/bbl range," Citi said in a note. Prices had been hovering around $65 per barrel in May. Brent crude futures were up $1.48, or 1.9%, to $78.18 a barrel by 1230 ET on Thursday, while U.S. West Texas Intermediate crude for July was up $1.72, or 2.3%, at $76.86. Separately, JP Morgan said in a note that in the most extreme case of a broader regional conflagration that includes the closure of the Strait of Hormuz, it estimates that oil prices could surge to $120-$130 per barrel. The Iran-Israel conflict has raised fears of potential supply disruptions in the Middle East, a key oil-producing region, pushing crude prices higher as traders react to the growing geopolitical risk. Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil. According to Citi, a disruption of about 3 million bpd over a multi-month period could push prices to $90 bbl. Any closure of the Strait of Hormuz could cause a sharp price spike, but Citi believes it would be brief as efforts would focus on a quick reopening. Iranian oil export disruptions may have a smaller impact on oil prices than expected due to falling exports and reduced Chinese purchases as prices are higher now, it said. "Production elsewhere globally may have risen sufficiently to offset the disruption impact, particularly if the production disruption was expected," Citi noted. Increased supply from the Organization of the Petroleum Exporting Countries could also mitigate the impact of potential Iranian oil export disruptions, it added. On Wednesday, Goldman Sachs noted that it estimates a geopolitical risk premium of around $10 per barrel following the rise in Brent prices to $76-77 per barrel, while Barclays said that if Iranian exports are reduced by half, crude prices could rise to $85 per barrel and that prices could move past $100 in the "worst-case" scenario of a wider conflagration.
