A surge in oil prices risks havoc for the global economy

Telegraph

3 hours ago

It always seems inappropriate for writers to be focusing on the economic and financial impact of conflicts such as the current one between Israel and Iran while there are people losing life and limb. Nevertheless, such assessments have to be made. So should we be seriously worried?
In general, non-economic factors, including those which damage life and limb, do not have much economic and financial impact on the world. There are exceptions, of course.
A really big non-economic event, such as a shooting war between the superpowers, undoubtedly would have an enormous economic impact. And when an apparently localised conflict starts, we don't know how serious it might ultimately become.
This alludes to a second reason for being coy about making an assessment. There are two interlocking types of uncertainty here. There is the usual uncertainty concerning economic relationships, but there is also the fundamental uncertainty about things completely outside the economist's conceptual toolkit, namely how serious the conflict will be, how long it will drag on for and what the ultimate outcome will be.
The only viable approach is to think through various scenarios. So here goes.
First, even after America's attack on Iran over the weekend, it is possible that the conflict dies down very quickly in which case no major economic damage will have been done globally. Alternatively, it may carry on for some weeks, but in a relatively contained way, not impinging on countries outside the area and not having a dramatic impact on oil prices.
A third scenario involves Iran trying to strike back at the West by closing the Strait of Hormuz, which has just recently been approved by Iran. This is the narrow point of the Persian Gulf and some 20pc of the world's oil consumption must pass through it.