Will a ceasefire hold between Israel and Iran? Is the Iranian missile attack on a US base in Qatar the only retaliation measure imposed on the US following the bombing of three nuclear sites?
Answers to these questions could determine how much to pay for not only at pumps but at all US stores, according to a new set of reports. One model suggests that inflation could more than double by the end of the year, leading to a good rise in oil prices.
However, crude oil traders appear cautiously optimistic. The future price at 12pm on Thursday was $65.88 compared to when Israel first attacked Iran on June 12th. It’s about $8 less than when the tension was at its peak.
While President Donald Trump and others in his administration say they ended the Israeli-Iran war by dropping bombs that destroy giant bunkers, two papers from Oxford Economics this week still call the situation in the Middle East a “liquid” and warn of what will happen if Iran decides to disrupt shipments in Hormuz’s tensions.
Iran’s supreme leader Ayatollah Ali Khamenei added uncertainty when he warned on Thursday that future attacks on Iran would cost him a great deal.
Oil prices fall from the high on June 20th
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Oxford Economics says it’s unlikely that Iran will completely close the Strait of Hormuz. Because they may not have the capacity, or they are likely to intervene by the US military. Iran will also not be interested in disrupting all oil transport. Considering that over 80% of the strait’s crude oil is generally bound by Asia.
Where is the Strait of Hormuz?
How Iran delays transport through the Strait of Hormuz
Iran was able to stop the Strait of Hormuz from closing, and yet disrupt the global economy. According to Oxford Economics, various methods may be used to travel through the straits, and may decide to make shipping in the Straits of Hormuz more risky and more expensive due to higher insurance costs.
Expanding the mine
Attack the ship with drone drones and missiles
GAM GPS signal
The effectiveness of any of these disruptions will have a variety of impacts on the prices of the global oil market. Recent history shows that the greater the rise in oil prices at the start of a conflict, the longer it usually takes to return to previous levels.
How crude oil prices changed in previous incidents
How gas prices followed crude oil prices after Russia invaded Ukraine
Naturally, rising oil prices will raise fuel prices. However, by the time gasoline reaches the pump, there are rarely any one-to-one changes, as additional costs (taxes, taxes and distribution have been added. When Russia invaded Ukraine, the already inflated oil prices helped raise US gas prices and promote higher inflation across the economy.
How short-term oil price spikes affect US inflation
Oxford Economics modelled what would happen if Iran could slow down around 70% of its shipping traffic in the Strait of Hormuz and raise global oil prices by 25%. Their model showed that annual inflation rate, 2.4% in May, measured by the consumer price index, could rise to 5.5% by the end of the year.
In the same scenario, Oxford Economics predicted that unemployment would rise to 4.5% from 4.2% in May.
