Fears of a protracted international conflict in the Middle East after US and Israeli airstrikes on Iran at the weekend have pushed up forecasts for oil price hikes.<\/p>\n
Investment bank JP Morgan predicted Brent crude could hit $130 a barrel if the conflict sees a full closure of the Strait of Hormuz through which 20% of global energy supplies transits.<\/p>\n
The strikes at the heart of the Iranian regime, which saw the country\u2019s Supreme Leader Ayatollah Ali Khamenei killed, prompted a widespread reaction across the region that saw airspace closed and thousands of flights cancelled.<\/p>\n
Travel disruption continued into the start of the week after airports in Dubai, Bahrain and Kuwait were targeted. In the immediate aftermath of the attacks oil prices spiked with Brent hitting a high of around $80 (up 10%) before falling back down.<\/p>\n
However, analysts have warned that a drawn-out crises could see long-term prices rises as shipping insurers assess the increased risk of operating in the region.<\/p>\n
Landon Derentz\u00a0vice president, energy and infrastructure, senior director, and Morningstar chair for Global Energy Security at the Atlantic Council Global Energy Centre, said the short-term impact is likely to be less acute that the Iraq War.<\/a><\/p>\n \u201cEnergy analysts are now forecasting the potential for a 5% to 15% increase in the prices of crude oil when markets open on Sunday evening, placing international benchmark Brent crude oil in a range of $76-$84 per barrel.<\/p>\n \u201cThis would mean that even with a material disruption to global oil flows, prices are projected to remain $20 per barrel below the inflation-adjusted average during the Iraq War.\u201d<\/p>\n However, he added: \u201cA sustained disruption would not only test energy markets. It would also test political tolerance in Washington and among allied governments that are already sensitive to increasing pressures around energy affordability over the past year.<\/p>\n \u201cAs the price shocks of the 1970s demonstrated, higher prices can quickly translate into domestic political constraints.\u201d<\/p>\n Nigel Green, chief executive of global financial advisory giant deVere Group<\/a>, said: \u201cInvestors are now confronting a renewed inflation threat at a moment when price growth in major economies remains above or only just approaching central bank targets.<\/p>\n \u201cWhen Brent jumps at this speed, inflation arithmetic changes quickly across developed economies.\u201d<\/p>\n Green added that the Bank of England estimates that a 10% increase in the price of Brent crude typically adds around 0.2 to 0.3 percentage points to UK inflation. But he claimed the significance of that multiplier is being underestimated.<\/p>\n \u201cA sustained move of this magnitude would materially lift headline CPI in the UK. Policymakers who believed inflation was moving steadily back toward target would face renewed pressure.\u201d<\/p>\n Latest data from industry analyst Cirium<\/a> revealed the extent of the disruption to airline operations following the US\/Israeli attacks.<\/p>\n This below chart sets out cancellations by destination country\u00a0to the Middle East as of 7am Eastern, 1pm CET, 14pm DXB for March 1.<\/p>\n