It would be about double what oil prices are today. And the damage to the global economy would be unimaginable. The Trump Administration has admitted to itself that a game plan for this price is worth making.
According to Bloomberg, “Trump administration officials are examining what a potential spike in oil prices as high as $200 a barrel would mean for the economy, according to people familiar with the matter, a sign senior officials are studying the possible fallout from extreme scenarios for the Iran war.” The work is not an attempt to set an exact dollar goal. Rather, it is to prepare for the worst. ( Bloomberg Economics has done its own modeling at $170.)
Among the largest financial firms, BlockRock has a case that shows the effects of oil at $150 per barrel. Its CEO, Larry Fink, thinks oil prices could remain in the low triple digits for months if tankers cannot reach the Suez Canal due to attacks on shipping. The result would be a deep and long recession.
How deep and how long would the downturn be if crude hit $200 for months rather than weeks? It is not necessary to have Bloomberg or BlackRock to make reasonable estimates.
First, the pain is different from country to country. The US produces more oil than it needs. However, some grades of crude are needed for specific products as they are refined. However, on paper, the US suffers little.
Crude oil that passes through the Strait accounts for almost 40% of China’s oil imports. The figure is 15% for India and over 12% for South Korea. These nations might have to ration oil and decide which parts of their economies can largely do without it. No matter how the distribution is set up, the loss of oil would be crippling.
More than oil is on the tankers many tankers. Over 90% of LNG from Qatar and the UAE is exported through the Strait and, again, the primary destinations are in Asia.
Key ingredients for chip making are also part of the cargo. This includes Helium and Bromine. A loss of these and LNG would affect the chip market. According to Wired, “From helium extraction in Qatar to shipping lanes in the Strait of Hormuz, the semiconductor industry depends on fragile links across the Gulf. Escalation could ripple through global chip production.” TSMC (NYSE: TSM | TSM Price Prediction) makes Nvidia (NASDAQ: NVDA) chips, so AI growth could be affected (The main risk to AI growth has been worry about electricity.)
Finally, the effects of oil on the gas, heating oil, jet fuel, and petroleum vehicles are that they would be driven higher. In 2022, $100 oil caused $5 gas. That, in turn, was one of the reasons that CPI rose 9.1% in June of that year, which caused a panic.
Top Gaining Stocks
Top Losing Stocks