Oil prices have surged to their highest level in nearly six months, driven by escalating fears over global supply following joint US and Israeli military actions against Iran's nuclear facilities.
Brent crude briefly climbed above 78 US dollars (£58.06) a barrel in early Monday trading before paring back slightly to stand at 77.6 dollars (£57.76).
This significant increase comes in the wake of recent Israeli strikes on Iranian nuclear sites, compounded by a weekend aerial bombing campaign by the United States targeting three facilities within Iran.
Investors are concerned about potential retaliatory actions from Tehran. Iran can disrupt oil shipments through the strategically vital Strait of Hormuz, a move which analysts fear could trigger a dramatic surge in crude prices and significantly impact global energy markets.
Panmure Liberum experts estimated that Brent crude could peak at 100 dollars (£74.43) a barrel due to severe disruption of the crucial waterway route.
Soaring oil prices, if the Strait of Hormuz is closed, could spark a “major” spike in inflation while seeing growth stall, which could have a severe knock-on effect on global stock markets, according to Joachim Klement at Panmure Liberum.
Closing the Strait of Hormuz could disrupt about a fifth of global oil and a fifth of global gas shipments, according to Panmure.
Mr Klement said it could be worse than the oil and gas shock seen in 2022 after Russia’s invasion of Ukraine and the subsequent sanctions against Russian oil and gas exports.
Mr Klement said: “If the Straits of Hormuz is shut, we expect a major stagflationary shock similar to 2022.
“In this case, a 10% to 20% correction seems likely and we could see a new bear market if the trade war escalates again in early July.”
But he said if the Strait of Hormuz is disrupted but not closed, “the inflation shock will be significant, but not enough to derail markets and the economies of the US, the UK and Eurozone for too long”.
“In this scenario, we expect an initial correction of stock markets of 5% to 10%.
“Whether this correction lasts longer and becomes deeper depends very much on how the trade war unfolds in the next couple of weeks.”
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