The International Monetary Fund’s chief, Kristalina Georgieva, has highlighted the global economy’s vulnerability to oil shocks originating from the Middle East, warning that US strikes on Iran could severely damage global growth. She told Bloomberg TV that the IMF is closely monitoring energy prices, stressing that any significant rise could trigger widespread “secondary and tertiary impacts” across the world economy, ultimately leading to downward revisions in global growth forecasts.
This vulnerability is acutely exposed by 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 measure, following a US attack, carries the risk of an unprecedented oil supply shock, which would undoubtedly push up inflation and impede economic expansion worldwide.
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.