Amidst the backdrop of escalating Middle East tensions and warnings about global economic damage, oil majors BP and Shell saw their stock prices rise on Monday. This uptick came even as the broader FTSE 100 blue-chip index slipped, highlighting how some sectors can benefit from geopolitical instability that drives up energy prices. The International Monetary Fund’s chief, Kristalina Georgieva, has explicitly stated that US strikes on Iran could harm global growth, citing the potential for significant increases in oil prices.
The concerns about oil supply stem from the Iranian parliament’s recent vote to consider closing the Strait of Hormuz, a crucial waterway for approximately 20% of global oil consumption. This move, a direct retaliation against a US attack, threatens to create an oil supply shock, which would push up energy prices and could lead to inflationary pressures and slower economic growth worldwide.
While oil prices initially surged over 5% to a five-month high of $81.40 on Sunday, they later retreated, with Brent crude settling near $76 a barrel on Monday. However, the potential for much higher prices persists, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are significantly reduced for an extended period. This volatility underscores the precariousness of the global energy landscape.
Against this backdrop, US Secretary of State Marco Rubio has warned Iran that closing the strait would be “economic suicide,” appealing to China for diplomatic pressure. Meanwhile, RBC Capital Markets analysts have cautioned against dismissing the risks, citing the potential for “energy attacks” from Iranian-backed militias and the ongoing uncertainty surrounding Iran’s full response, keeping global markets on edge, as evidenced by two supertankers changing course in Hormuz.