Because a war between Iran and Israel risks causing the price of oil to skyrocket

An expansion of the war in the Middle East would represent a serious threat to the global economy and, concretely, for the pockets of tens of millions of citizens, also in Europe. Unlike what happened with the conflicts in Ukraine and Gaza, in fact, an escalation between Iran and Israel could lead to a net conflict increase in oil prices and consequently also its derivatives, such as fuels, plastics, chemical products and fertilizers, triggering a domino effect for all sectors of the economy. This – more than the humanitarian consequences on the civilian populations involved in the fighting – is the main reason why diplomats are working to try to avert the worst.

The economist Davide Tabarelli

Second David Tabarellieconomist and president of Nomisma Energia, the repercussions of the wars that have broken out in recent years on the price of crude oil have overall been limited. “If I were to write the history of the global oil industry – says the analyst – I would say that – despite the three main ongoing wars, namely the one in Ukraine, the one in Gaza and the one in the Red Sea – oil prices in recent months have stabilized around 75/80 dollars a barrel. This is because it exists much more offer than in the past. Over the last 50 years, the price of crude oil has gradually freed itself from geopolitical events, above all thanks to greater market efficiency and a production that has diversified throughout the world and is no longer concentrated in the Middle East alone.”

Compared to the past, therefore, the trend in the price of crude oil is affected much less by armed conflicts and it is a fact that today a part of the Middle East, starting with Saudi Arabia, is much closer to the West than in decades past, ensuring a constant influx of “black gold” even to the richest economies in the world. Nonetheless the risks of a shock are always around the corner. “The Strait of Hormuz – explains Tabarelli – could be involved in the event of an escalation between Iran and Israel. This would mean that the large oil tankers – which pass through there to reach European ports – would be constantly threatened. In this case the price of oil could splash at 130, or even 200 dollars a barrel“.

The Strait of Hormuz

If crude oil imports from the Persian Gulf were to cease, and we are talking about 15 million barrels per day out of a total demand of 102 million, the problems would be serious. Despite the energy transition, in fact, the relationship between the global economy and oil is always very strong. “We older people remember well what happened with the shock of the 70s. Petrol prices tripled and inflation skyrocketed. Even in this case the consequences would be similar – warns Tabarelli -. The price of fuel would double, there would be an increase in inflation, then we would end up in recession and unemployment would skyrocket. In concrete terms, for families it would mean receiving very high bills and a sharp increase in the prices of the most common consumer goods.”

“In Europe – concludes the president of Nomisma – we are still dependent on oil imports from abroad. 95% of energy demand in the transport sector is covered by petroleum derivatives. This means that we have no alternatives at the moment. Even for this reason it is necessary to accelerate the energy transition and diversify sources of supply.”