War risk keeps prices elevated – Rabobank

Finance

War risk keeps prices elevated – Rabobank

RaboBanks Global Strategist Michael Every highlights that Gulf War 3 and the closure of the Strait of Hormuz have pushed Oil prices about 60% above pre-war levels, with specific products like diesel and jet fuel particularly affected in Asia. The bank warns that if the conflict extends for months, the energy shock could rival Covid-19 and the 1970s oil crises combined.

Hormuz closure drives severe energy shock

“As the war enters its fifth week, the impact of the closure of the Strait of Hormuz is clear even if some geographies and parts of the energy/petrochemicals complex (i.e., diesel, bunker fuel, jet fuel, fertiliser, naphtha, sulphur, and helium) are hurting more than others. Oil prices overall are up 60% from pre-war levels, but some products are not available in some locations – Asia, diesel, and jet fuel ‘lead’ but others will follow if the war doesnt end soon.”

“Were it to extend for months, the crisis could equal the Covid-19 epidemic and the 1970‘s oil shocks combined – and that doesn’t account for supply-side damage to Gulf energy flows from war and oil-well shut-ins.”

“In short, for now we are sticking to our geopolitical base-case scenario of the war being over in 2-3 weeks on largely US terms, then a slow return to normal for energy… but not for geopolitics: the world wont look the same on the other side of this whether the US wins or loses.”

“Yet there are obviously huge fat tail risks.”