Could oil hit $200 a barrel? Analysts are no longer a far-fetched idea Shakti news

Shortly after the United States and Israel attacked Iran for the first time on February 28, analysts warned that a war could push oil prices above $100 a barrel.

Now, less than three weeks into the conflict, market watchers are seriously considering the possibility of prices breaking above $150 or $200.

On March 9, the Brent crude price – the global benchmark – touched around $120 and has not fallen below the $100 threshold since March 13.

An Israeli strike on Iran’s South Pars gasfield on March 18, prompting Iranian attacks on oil and gas facilities in Qatar, Saudi Arabia and the United Arab Emirates, pushed crude prices above $108 a barrel on Wednesday.

Analysts widely agree that if the Strait of Hormuz, a route for about a fifth of global oil supplies in peacetime, is effectively closed in the coming weeks, prices have room to move much higher.

The real point of contention is how much.

“Benchmark Middle Eastern crudes like Oman and Dubai have already crossed the $150 threshold, so $200 is already in sight, if not for Brent and West Texas Intermediate,” Vandana Hari, founder of oil market analysis provider Wanda Insights, told Al Jazeera.

“How much more crude rises from here depends almost entirely on how long the Strait of Hormuz remains closed,” Hari said.

After Iran announced at the start of the conflict that it had closed the strait – and threatened to strike any ships that tried to pass – traffic was halted.

US President Donald Trump has failed to attract international support for a naval convoy to reopen the strait, while countries scramble to strike deals with Iran for safe passage. A handful of ships – mostly Indian, Pakistani, Turkish and Chinese-flagged ships – are allowed to pass through in recent days.

Although countries have committed to release 400 million barrels of oil from emergency stockpiles in coordination with the International Energy Agency, the reserves cannot fully cover the disruption of shipping by waterways.

Singapore-based OCBC Group Research estimates that the global market is facing a daily shortfall of about 10 million barrels even when reserves are taken into account.

Wood Mackenzie analysts said last week that Brent could reach $150 soon and $200 in 2026 was not “outside the realms of possibility”.

Iran has also invoked the prospect of $200 oil, with a military spokesman warning last week that the world should “get ready” for such a spike.

“Strategic reserves and replacement barrels can stabilize prices if the market believes supply will meet demand, but if flows through Hormuz are materially disrupted for a sustained period, prices above $100 will approach $200,” Chad Norville, president of industry publication Rigzone, told Al Jazeera.

“In many respects, today’s conditions may allow for a more dramatic move than the Gulf War, given the large share of global supply that is potentially at risk and the wide imbalance between supply and demand that presents.”

Oil prices of $150 or more will weigh on the global economy.

The International Monetary Fund estimates that every 10 percent increase in oil prices over a year corresponds to a 0.4 percent increase in global inflation and a 0.15 percent decrease in economic growth.

Brent crude reached $147.50 a barrel in 2008 at the height of the global financial crisis.

In today’s dollars, the all-time high equates to about $224.

On Thursday, Brent futures topped $112, the highest in more than a week.

Adi Imcirovic, an energy expert at the University of Oxford, told Al Jazeera that oil at $200 a barrel “would be a major handbrake for the world economy”. He described the prospect of prices hitting such levels as “absolutely possible”.

“It affects inflation, growth, employment and in some cases causes not only shortage of fuel but shortage of materials like fertilizers, plastics and so on,” he said.

Sasha Foss, an energy market analyst at Marex in London, offered a more sanguine view, however, calling the prospect of $200 Brent “very outlandish.”

Foss pointed out that significant increases in production from various countries, including the US, Canada, Argentina, Brazil and Guyana, as well as the existence of alternative supply routes such as Saudi Arabia’s East-West Pipeline, are reasons for optimism.

“We really saw in the wake of the Russia-Ukraine war … the adage that the cure for high prices is high prices,” Fass told Al Jazeera.

“We have seen an increase in production from other regions of the world.”

Although prices depend heavily on the resumption of traffic through the Strait of Hormuz, their trajectory is also shaped by the law of supply and demand in other ways.

Buyers of goods and services generally begin to cut back on consumption when prices rise above a certain level, a phenomenon known as “demand destruction”.

The demand for oil is less elastic than most commodities because it is difficult to replace or go without, prices are still moderate and begin to decrease after a certain point is exceeded.

“No one knows what that level will be, but it could be higher than the previous nominal peak at $147 a barrel,” Bob McNally, president of Rapidan Energy Group, told Al Jazeera.

“Two countervailing trends – buyers exiting the market through demand destruction and buyers chasing fewer barrels at any cost – play against each other,” Gregor Seminiuk, a professor of public policy and economics at the University of Massachusetts Amherst, told Al Jazeera.