Oil Prices Stay Above $100 per Barrel as U.S.-Iran Conflict Continues

Oil prices have remained above $100 per barrel for the past month as the conflict between the United States and Iran continues. The International Energy Agency estimates that more than 1 billion barrels of oil have been lost from the Persian Gulf, with losses growing at more than 14 million barrels a day.

President Trump stated on March 1 that the war against Iran would be over in four to five weeks. This week he said a deal to end the war was near while also instructing military leaders to prepare for a full, large-scale assault on Iran.

Financial markets have stopped giving weight to statements that the conflict will end soon. U.S. government bonds has risen more than 8 percent over the past four weeks. Australia’s interest costs have increased by 2 percent over the same period. 3 percent by December this year if oil prices stay elevated.

The forecast assumes oil prices peak at $100 per barrel and ease to $75 by year’s end, with ships moving through the Strait of Hormuz by December.

Nations have drawn down oil inventories at a record pace to offset lost supply. Some oil-producing countries have increased output, but the increase remains short of the volumes previously supplied by Iran, the UAE, and Kuwait. The Treasury modeled a scenario with oil at $200 per barrel.

Under that scenario, inflation would surge then fall as the economy enters recession and more than 100,000 additional people lose jobs. Capital Economics chief economist Neil Shearing said the Iranians view control over the Strait of Hormuz as their key source of leverage.

He added that President Trump has insisted Iran must curtail its nuclear program as part of any longer-lasting deal.