What impact could oil tanker attacks have on global economy?
Attacks targeting two oil tankers in the strait of Hormuz on Thursday followed strikes against four ships a month ago. The US has blamed Iran for the action and the oil price has risen as a consequence. Here we examine the potential impact on the global economy.
Are the attacks a threat to the global economy?
The global economy continues to be lubricated by oil, despite the increased use of renewable energy. Transport systems depend on the steady flow of oil to refineries and a break in the flow can create shortages within a few months. The Brent crude price rose more than 4% on Thursday morning to $62.64 (£49.38) per barrel, reflecting those concerns. Tankers guided by satellite can be redirected to replace crippled ships but the oil industry has been rattled by the threat hanging over the busiest shipping lane in the Middle East and the crude cargo that travels through it.
Why is the Gulf of Oman so important?
The strait of Hormuz, which provides passage from the Gulf of Oman to the open sea, is the most important gateway for oil exports in the world. The US Energy Information Administration (EIA) calls it the world’s worst “chokepoint”, worse than the strait of Malacca, which runs between the Indonesian island of Sumatra, Malaysia and Thailand, connecting the Indian Ocean with the South China Sea. In 2016, 18.5m barrels of crude were transported through the strait of Hormuz compared with 16m through the strait of Malacca and 5m through the next largest, the Suez canal.
How have markets reacted?
As well as sending oil prices higher, some of the Middle East’s main stock markets fell by about 1%. This relatively muted response to what appears to be a crisis for the oil industry partially reflects the fact that the oil market has already priced in the supply and geopolitical risks emanating from Iran, said Cailin Birch, the global economist at the Economist Intelligence Unit. However, other oil analysts say traders fear an escalation of the crisis in the region, which supplies much of the world with oil.
What is the impact of a long-term rise in oil prices?
In recent months, oil prices have fallen in response to forecasts of lower demand this year and next. Last October the price of a barrel of Brent crude oil was heading towards $90 before falling to almost $50 in December. Since April, when prices had climbed back to $72 per barrel, the price has slumped back to about $60. Oil analysts continue to expect prices to remain between $60 and $70 for the rest of the year but further attacks would force them to revise up their predictions.
What is the state of the global economy right now?
The global economy is struggling to regain momentum after the tit-for-tat trade tariff battles initiated by the Trump administration. A slowdown in trade over the past 18 months and a collapse in investment spending will push down GDP growth to 2.6% this year after several years above 3%, the World Bank said in its most recent forecast. Fears of a slowdown in the demand for oil are one of the main factors keeping a lid on prices at the moment. If a deal was struck between the US and China when the two countries’ presidents meet in June – one that prevents an escalation of the trade war – economic prospects would receive a boost. Higher global demand and further tanker bombings in the Gulf would probably push oil prices back up towards $80.
Source: The Guardian