Amid Israel-Iran tensions, the Bank of America issues a warning of $130 in oil
As tensions escalate between Israel and Iran, the Bank of America has issued a stark warning to its clients: the prospect of an all-out war between the two nations could send oil prices soaring to unprecedented levels. According to a research note seen by CNBC, experts at the bank have cautioned that a direct conflict could result in oil prices reaching as high as $130 per barrel, significantly impacting global energy markets.
The recent escalation in hostilities stems from Iran's first direct military attack on Israel, which followed a suspected Israeli airstrike on the Iranian diplomatic mission in Syria. In the event of a prolonged conflict that disrupts energy infrastructure and affects Iranian crude supplies, the Bank of America predicts that the price of Brent crude, a global benchmark, could experience substantial escalation.
The research note suggests that if Iranian oil production were to decline by up to 1.5 million barrels per day (bpd), Brent crude could reach $130 in the second quarter of this year. Additionally, US crude oil prices could surge to $123 per barrel under similar circumstances.
Iran, as a key member of the Organisation of the Petroleum Exporting Countries (OPEC), plays a significant role in global oil markets, with a production capacity of approximately 3.2 million bpd. A disruption of this magnitude could have far-reaching consequences for energy markets worldwide.
Furthermore, the note outlines potential scenarios in which disruptions extend beyond Iran, leading to a loss of 2 million bpd or more in global oil supply. In such cases, oil prices could spike by as much as $50 per barrel, with Brent eventually stabilising around $100 by 2025.
Despite initial fluctuations in oil prices following Iran's retaliatory strike, Bank of America underscores the broader economic and geopolitical implications of sustained conflict. While limited casualties and damage initially temper market reactions, analysts caution that the medium-term consequences may be more significant.
In terms of the impact on the United States, the Bank of America distinguishes between a conflict confined to Israel and Iran and a broader regional war. While the former may have minimal repercussions on US economic growth and monetary policy, a wider regional conflict could pose substantial risks.
According to the latest trading data, the Intercontinental Exchange (ICE) priced Brent futures at $86.6 per barrel, while New York traded WTI futures at $82 per barrel. However, the potential for heightened geopolitical tensions continues to loom large over energy markets, with investors closely monitoring developments in the Middle East.
In conclusion, the Bank of America's warning underscores the fragility of global energy markets in the face of escalating geopolitical tensions. As Israel and Iran teeter on the brink of conflict, the spectre of $130 oil serves as a stark reminder of the broader implications for economies and industries worldwide.