View the article online at http://citywire.co.uk/money/article/a542438
Israel vs Iran: threat to oil prices and the world economy
An Israeli strike against Iran’s nuclear facilities would pose a ‘fairly grave threat' to the global economy, warns chief economist at UBS.
An Israeli strike against Iran’s nuclear facilities would likely trigger a surge in oil prices and endanger the faltering world economy, UBS chief economist Larry Hatheway has warned.
The comments came amid mounting speculation that Israel is preparing to launch such an attack, after a UN report last week said that Iran appears to have worked on designing an atomic bomb and that secret research may still be going on.
Brent crude oil futures hit a two-month high of $116.48 per barrel on the day of the report, and have remained above $110 since then, despite concerns that the eurozone debt crisis will derail the global economic recovery and sap demand.
Attributing the recent gains in oil prices to a ‘degree of risk, particularly around the situation in Iran’, Hatheway said a ‘spike’ in oil prices induced by a supply disruption would ‘jeopardise a lot of the things fundamentally that are improving’.
‘[It] certainly would make some of those cases, for example in Europe, much, much worse,’ he continued, speaking in a panel discussion at a conference held by UBS in central London today.
The economist, who is also chief strategist at the Swiss banking giant, pointed out that in the event of an Israeli assault, markets would have to expect some disruption of oil supplies. He cited the risks to production by Iran, the world’s fourth biggest oil producer, and to shipping in the Strait of Hormuz, a strategically important waterway off the coast of the Islamic Republic.
In 2008, the commander of Iran's Revolutionary Guard, Ali Mohammed Jafari, threatened that Iran would seal off the strait – through which about 15.5 million barrels of oil pass every day – in the event of an Israeli or US assault.
Speculation over a possible attack by Israel – which regards a nuclear-armed Iran as potentially an existential threat – has grown in recent years, in tandem with Western suspicions that Iran is covertly pursuing an atomic weapons programme. Iran says its nuclear programme is for peaceful purposes only.
During the discussion, Hatheway pointed out that even though Libya is a smaller oil producer, the revolt against the Gaddafi regime sent oil prices higher. Although this was partly due to the somewhat ‘precious’ quality of Libya’s light, sweet crude, Hatheway said it also reflected the fact that the oil market, despite a weak global economy, is still fairly tight and supply is inelastic.
It would not be surprising to see oil prices ‘overreact’ on concerns about a supply disruption, Hatheway said. ‘How high oil prices could go, I suppose is more a matter of guess than anything else,’ he added.
But he said that an Israeli strike against Iran, in addition to the accompanying political risk, would pose a ‘fairly grave threat to what is already a very weak global environment – both financially, as well as of course economically’.
News sponsored by:
Making the most out of Europe's potential means seeing things differently. Learn more about how BlackRock's focused approach to investing in Europe helps investors unlock the continent's vast potential.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
More from us
- Oil tumbles as IEA moves to drawn on crude stocks
- Oil prices wobble after Gaddafi killed in Libya
- Witan: why printing even more money can save the world
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.