Oil prices: Worth It? | Counting the Cost
The Iran war has severely disrupted oil and gas flows through the Strait of Hormuz, a route normally used for around 20% of the world’s
The Iran war has severely disrupted oil and gas flows through the Strait of Hormuz, a route normally used for around 20% of the world’s oil and gas supplies. That has cut off oil and gas supplies from the Gulf to Asia and Europe. Pressure has also spread to Bab al-Mandeb in the Red Sea, while Ukrainian attacks on Russian infrastructure has affected exports through the Black Sea.
Diplomatic efforts continue to reach a final deal, but the situation remains volatile and shipping through the Strait of Hormuz are yet to be fully restored. Oil prices respond not only to barrels already removed from the market, but also to expectations of what could happen next. Goldman Sachs has warned that Brent could rise above $120 a barrel, if disruption through the Strait of Hormuz persists.
Higher energy prices spread through the wider economy, increasing the cost of almost everything from transport to manufacturing, air travel to food. Consumers across the world are starting to feel the pinch of higher costs. That can push up inflation, prompting central banks to raise interest rates. But higher interest rates mean higher borrowing costs on car loans, mortgages and credit cards.
If the energy shock lasts, weaker consumer spending and higher business costs could slow economic growth and increase the risk of a recession.
The BriefWire