Iran’s conflict with Israel will threaten to increase fuel prices and disrupt global supplies. PHOTO/Ist
JAKARTA – Attack Iran The unprecedented attack on Israel last weekend has raised tensions in the oil-rich Middle East and threatened to soar fuel prices if the conflict escalates and disrupts global supplies. Iran launched a number of missiles towards Israel in retaliation for a suspected Israeli attack on an Iranian diplomatic compound in Syria on April 1.
These tensions caused oil prices to rise sharply, which has not happened since October. Oil prices have risen sharply since bottoming in early February. Brent has risen more than 16% by the time it closed above USD90 a barrel in early April for the first time since October while WTI has risen almost 19% to reach USD85 a barrel. This deepening conflict increases the risk of increased volatility in global oil markets.
The dispute between the two countries could disrupt shipping through the Strait of Hormuz, a narrow waterway on the country’s southern border through which more than a quarter of global maritime oil trade including crude oil and fuel oil (BBM) products passes every day.
If the conflict escalates further, Iran has the capability to attack oil tankers passing through the strait using drones, missiles or submarines. The worst-case scenario would involve a total blockade of the strait by Tehran although this is highly unlikely.
IEA data shows Iran exports up to 1.5 million barrels per day of crude oil, equivalent to 1.5% of global oil supplies. The country produced a total of 3.25 million barrels per day of crude oil in March. Quoting CNN International, increasing tensions in the Middle East could impact demand for precious metals and central banks return to lower interest rates due to geopolitical risks and higher inflation.
Lecturer at the Faculty of Economics and Business, University of Indonesia (UI), Fithra Faisal Hastiadi, stated that the economic impact would only be visible if Iran’s war with Israel continued. The Indonesian economy will be affected by the increase in global crude oil prices.
He projected that oil prices could reach USD 100 barrels if tensions between the two countries continued to heat up. Oil prices rose not because supply was reduced due to war but because trade routes were disrupted.
“If we look at the global impact, world oil prices will be above USD 100 per barrel,” he said, quoted by the BBC, Sunday (21/4/2024).
Indonesia as an oil importing country will be affected. When oil prices increase, fuel prices will also increase, followed by increases in prices of other commodities. “If the government maintains fuel prices at the current level, the fuel subsidy burden will be very large,” he explained.
