A photo illustration of a Brent crude oil price chart displayed on a screen. (File photo) Photo: AFP / Jonathan Raa / NurPhoto
War in the Middle East might have developed beyond US President Donald Trump's ability to end it at whim, but has it yet reached a worst-case scenario?
Bloomberg reported on Friday that "international and US efforts to mollify oil markets continued to fail in the face of the long-feared worst-case scenario".
Iran had pledged to keep the Strait of Hormuz effectively shut.
New Zealand commentators said the situation was deteriorating with each day that passed - but could it yet be called a worst-case scenario?
Mike Jones, chief economist at BNZ, said there were still a wide range of scenarios at play.
"I think what we've seen over the past few days is markets adjust expectations around the length and impact of this conflict. Oil prices have continued to grind higher since Tuesday's brief reprieve, and global bond yields are rising as a bigger inflation shock is factored in. That's not a growth-friendly mix, although the magnitude of any impact is still highly uncertain.
"I think what is clear is that every day the Strait is closed the risk to the global and domestic economies rises. And even when shipping does resume, it looks as if it will take some time for energy trade to recover. That means we could see some sort of risk premium built into oil prices for a longer period."
Kelly Eckhold, chief economist at Westpac, said it was a "very serious situation" that was unprecedented outside the 1970s oil embargo period.
"Our analysis last week showed that the economic impacts would scale up significantly the longer the straits are closed. There will be an accumulating shortage of crude oil in Asian jurisdictions which is where we source our refined products. And the reality is you can't refine and export what you can't access.
"Right now, the impacts are modest. We have fuel inventories on hand and new supplies seem to be arriving as usual. Business has likely not needed to do much more than prepare contingency plans. Consumers are noticing an uncomfortable rise in fuel prices that hasn't extended beyond the experience of the last few years. However, that will change as the closure period grows. Crude oil and refined product will become scarcer and more expensive and cause increasing economic losses."
Westpac chief economist Kelly Eckhold. (File photo) Photo: Newshub
At Otago University, Murat Ungor said he did not think the situation was yet a "worst-case scenario" - because things could still get "considerably worse".
"What is likely happening is anchoring to recent experience: oil has traded in the US$70-95 range since August 2022, so breaking US$100 feels dramatic relative to that baseline. To put this in historical context, we have seen far more extreme oil price environments. During the 2008 financial crisis, Brent crude reached US$147/barrel.
"Or, following the 2019 Abqaiq attack on Saudi facilities, markets briefly priced in severe supply disruption scenarios.
"A genuine worst-case oil scenario would involve several interrelated factors not yet observed.
"First, a large-scale physical supply disruption. Second, prices rising to US$150 to US$200 per barrel and remaining there some weeks or even a few months. Third, cascading macroeconomic effects: global recession, stagflation, and supply-chain paralysis as transport costs make moving goods uneconomical. Finally, severe demand destruction, with airlines grounding fleets, industrial production halting, and possible fuel rationing in major economies - surely, this is a part of the worst-case scenario."
He said the current prices did not reflect worst-case outcomes.
"I think we are in a regime of significantly elevated risk rather than a worst-case realisation. That captures the seriousness without overstating where we currently stand."
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