Persian Gulf conflict could send oil beyond $325

Tensions between Iran and the United States reached a record high after a US spy drone violated Iran’s airspace last month and ignored Iran’s warnings before being targeted by IRGC’s air defense on June 20.

US created tensions in the Persian Gulf which many experts believe are intentionally provide weight to Tehran’s threat that it will inflict a heavy toll on US allies in the region if attacked by American forces and will not allow these same countries to export their oil if it can’t export its own.

The impact on oil markets of an Iranian closure of the Strait of Hormuz would be enormous. In this regards, analysts believe that one of these three scenarios is likely to occur.

In the Optimistic Scenario, where the Strait of Hormuz is only closed to commercial traffic for a few days, the impact on global oil supplies would be relatively minimal, but we would still see a brief spike above $100 per barrel due to the initial uncertainty surrounding its outcome. Crude prices would then quickly fall back to pre-crisis levels. In this scenario, the capacity of oil and pipelines in Saudi Arabia and the United Arab Emirates will be effective bypassing the Strait of Hormuz.

Under the Pessimistic Scenario, the world’s oil emergency response system would be taxed to its maximum in the first two months of the crisis – assuming the Strait of Hormuz is fully closed for the first 45 days, and a straight line resumption in oil tanker traffic over the next 45 days – leading to historically high crude oil prices on an inflation-adjusted basis for an extended period.

Finally, in a Doomsday Scenario, where there is significant damage to Persian Gulf oil-producing and export infrastructure as well as a three-month closure of the Strait of Hormuz, crude oil prices would rocket into the stratosphere. They would not begin to fall back until the global economy collapses into deep recession.

ZZ/PR