The price of Brent Crude oil could surpass $200 (£126) a barrel on the back of rising tensions between Israel and Iran, which would have negative effects on developed economies, according to RMG Wealth Management.
Oil hit a nine-month high yesterday, peaking at around $124, spurred by supply problems in South Sudan, Libya and Yemen as well as the escalating concern over disruption in Iran.
David Man, partner at RMG, said the price of oil is rising again and dramatic increases, as seen last year and 2008,could impact developed economies and spur inflation.
He said: ‘The rising tensions between Israel and Iran are clearly helping push oil prices higher, and although we have no idea of what the probability is of a real escalation here, we suspect that it would cause oil prices to spike above US$150 and maybe to above $200.’
He added Brent is approaching the highs it hit in the wake of the Arab Spring last year, while the trend has been solidly higher since last October. This fuelled inflation which peaked at over 5% last year hitting developed economies, while wages were not rising.
He added: ‘Today a spike in oil prices is probably the greatest risk to markets and so we need to watch the Middle East closer than ever when we make any investment decisions.’
According to analysts at JP Morgan, upside risk to improving economic data needs to be tempered by recent concerns emanating from the energy markets.
The analysts said: ‘The price of Brent crude oil has moved above $120/bbl for the first time since early May of last year, reflecting a roughly 10% rise since the start of this year.
‘Although some of this increase reflects shifting expectations about economic growth, the latest move up also likely reflects concerns surrounding a possible oil embargo on Iran.
They said in response to Iran’s nuclear ambitions, the US and European Union have agreed to impose a set of aggressive sanctions on Iran.
While Europe plans to curb imports starting in May, the US will impose sanctions, due to take effect at the end of March, that would deny access to the US payments system to anyone that does not show an effort to reduce trading activities with Iran.
They added: ‘The threat of sanctions is combining with a cold snap across Asia and Europe to push up prices.’
Crude was at $120.13 at 9:30 this morning.