Kristalina Georgieva, the director of the International Monetary Fund, has revealed that the IMF is “watching energy prices closely” as tensions escalate between the US and Iran. She warned Bloomberg TV that a rise in oil prices, potentially spurred by US strikes on Iran, could have a ripple effect with “secondary and tertiary impacts” across the global economy, leading to downward revisions in global growth prospects, especially for large economies.
The scrutiny on energy prices is directly linked to the Iranian parliament’s recent vote to consider closing the Strait of Hormuz, a crucial maritime chokepoint through which a fifth of the world’s oil consumption flows. This retaliatory move, following a US attack, carries the risk of a severe oil supply shock, which would undoubtedly push up inflation and impede economic expansion.
Oil prices initially jumped over 5% on Sunday, hitting a five-month high of $81.40, reflecting immediate market anxiety. However, prices later retreated, with Brent crude falling to just over $76 a barrel on Monday. Nevertheless, the potential for extreme price hikes persists, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are significantly curtailed for an extended period.
Against this backdrop, US Secretary of State Marco Rubio has branded a closure of the strait as “economic suicide” for Iran, urging China to influence Tehran given its heavy reliance on Hormuz for oil. Analysts at RBC Capital Markets have also advised against complacency, warning of “clear and present risk of energy attacks” from Iranian-backed groups and noting the fluidity of the situation, as evidenced by the reported U-turn of two supertankers in the strait.
