Oil Price Surge Poses Threat to Global Economy

Good morning and welcome to our live coverage of the latest economic and financial news impacting the global economy. The recent surge in oil prices due to escalating tensions between Israel and Iran is raising concerns among economists about the potential adverse impact on the already struggling global economy.

This morning, oil prices have increased by approximately 1% as the conflict between the two nations enters its fourth day. The fear of supply disruptions, particularly if the crucial Strait of Hormuz is closed, is contributing to the volatility in oil prices. Following a 7% jump on Friday, Brent crude is now up by 0.5% on Monday morning, reaching $74.60 per barrel, nearing the five-month high recorded last Friday.

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Iran is responsible for about 3% of the world's oil supply, and approximately 20% of global oil and LNG pass through the Strait of Hormuz, making it a vital passage for the global economy. Traders have observed that an Iranian gas field in the Persian Gulf was targeted on Saturday, leading Iran's foreign minister to accuse Israel of attempting to escalate the conflict beyond Iran.

Mohamed El-Erian, an economic advisor at Allianz, has cautioned that the ongoing conflict could result in slower global growth, heightened inflationary pressures, reduced policy flexibility for central banks, and a gradual erosion of the global order. He emphasized that these effects could pose an adverse shock to the already fragile global economy.

Despite the escalating tensions, stock markets have shown some resilience on Monday. Japan's Nikkei 225 index has risen by over 1% today, and China's markets are also slightly higher. Wall Street is expected to open on a positive note as well. Tony Sycamore, an analyst at IG, noted that US S&P500 equity futures are trading about 0.95% higher, buoyed by Israel's successful targeting of Iran's strategic facilities without disrupting key Iranian oil export infrastructure.