- Saudi oil facilities were hit by strikes over the weekend, sending markets into a spin as oil surged as much as 20%.
- While Yemeni Houthi rebels claimed responsibility for the attacks on the two sites, the US and Saudi both said the attacks came from Iran.
- Depending on how long the disruption lasts, oil could rise from $US66 to $US85 a barrel, Capital Economics said.
- If geopolitical tensions rise between Iran and the US, oil could skyrocket to $US150 a barrel and dampen global growth, the economists added.
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Economists are warning the recent strikes on Saudi Arabia’s oil facilities could escalate conflict between the US and Iran, sending markets into meltdown, driving the price of oil as high as $US150 a barrel, and slowing global growth even further.
Two of Saud Arabia’s oil facilities were attacked over the weekend, disrupting half of the country’s oil output or about 5% of global production. Both the US and Saudi Arabia have blamed Iran for the strikes.
“Remember when Iran shot down a drone, saying knowingly that it was in their “airspace” when, in fact, it was nowhere close,” President Donald Trump tweeted. “They stuck strongly to that story knowing that it was a very big lie. Now they say that they had nothing to do with the attack on Saudi Arabia. We’ll see?”
Prior to this the president said he was “locked and loaded“, saying the US knew who was to blame for the strikes. Yemeni Houthi rebels – embroiled in a years-long conflict with Saudi Arabia – have claimed responsibility for the strikes.
Economists at Capital Economics said in a note the conflict carries a major risk of sending oil prices skyrocketing and slowing the global economy even further.
Their worst case scenario is “a full-blown US-Iran conflict, which could cause the oil price to rise to $US150 per barrel this year.”
However, they would expect the oil price to retreat from that level to around $US80 per barrel in 2020 and $US60 in 2021 as other producers filled the supply gap.
In their medium-case scenario, “The associated supply constraints and higher risk premium could drive the oil price up to about $US85 per barrel this year, where it might remain,” they wrote.
Capital’s best-case scenario is a “mainly precautionary” cut-off and a swift restoration of Saudi oil supply. “In this event, we would see the price of Brent crude falling back in line with our previous forecasts of $US60 per barrel by year-end, $US65 by the end of 2020 and $US68 at end-2021.”
The economists also expect the conflict to have a major impact on the global economy. “We expect global growth to stabilise at a slow pace rather than weaken further,” they wrote. “But a continued escalation of tensions in the Middle East would make us more inclined to forecast a deeper downturn.”
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