According to Bank of America, a direct war between Israel and Iran could lead to significantly higher oil prices through 2025. According to the bank, oil prices could increase by $30 to $40 per barrel if hostilities escalated into a months-long war that affected Iran’s energy infrastructure and disrupted crude oil supplies. They predict Brent oil prices could spike to $130 in the second quarter while US crude oil will spike to $123. This scenario assumes Iran’s crude oil production drops by up to 1.5 million barrels per day due to the war. OPEC+ will eventually jump into the breach by releasing barrels, but this will reduce the group’s spare capacity. Brent will eventually stabilize at around $100 by 2025 while US oil will fall to $93. Crude oil prices have fallen for three consecutive trading sessions following Iran’s weekend missile and drone attacks on Israel. US oil is currently trading below $85 while Brent has fallen below $90 a barrel as oil futures pared gains achieved before the attack. “So far, the events of the past weekend have left few casualties and damage thanks to the protective shield of defense,” Bank of America’s global economics team told clients in a research note Tuesday. of Israel, allowing some geopolitical risks in the oil market to reverse.” However, analysts warned that the market reaction to the attack “may not reflect the medium-term economic and geopolitical implications” of Iran’s first direct attack on Israel . Bank of America sees little impact on US economic growth and the Federal Reserve’s monetary policy as long as the war is limited to Israel and Iran. The bank laid out the Fed’s first interest rate cut in December, and oil prices will fall at that time, although they will remain high. However, according to the bank, a general war in the region could have a significant impact on the US economy and the Fed’s monetary policy. If war leads to major oil disruptions outside of Iran with the market losing 2 million barrels a day or more, prices will spike another $50 a barrel. “If supply losses increase in the region, access to spare production capacity may also be difficult, so oil prices are likely to stabilize above $150,” the bank’s analysts forecast. /barrel for several months”. In this scenario, US economic growth will stabilize in the third quarter and reach a low of 1% year-on-year in the fourth quarter. The Fed will likely delay interest rate cuts until the second quarter of 2025 or even into the second half of the year. “We do not think the Fed can consider an energy price shock of this magnitude, especially since inflation expectations are also likely to rise beyond recent historical ranges,” the analysts wrote. According to the bank, if the current conflict remains a limited engagement and does not disrupt energy supplies, the oil market will price an increased risk premium of $5 to $10 per barrel with negligible impact on US economic and monetary policy. “Israel’s response will be key,” the analyst said. “The decision of the Israeli War Cabinet is worth watching.” – CNBC’s Michael Bloom contributed to this report.
