International oil prices are heading towards the "100 mark." How will the subsequent trend and impact develop? Read to understand.

The conflict between the US and Iran has been ongoing for nearly a week, and the “world’s most critical oil choke point” — the Strait of Hormuz — is almost at a standstill, significantly impacting oil production in the Middle East. Against this backdrop, international oil prices surged this week, with US WTI and Brent crude experiencing their largest weekly gains since 1983 and 1991, respectively.

As panic sentiments continue to grow, the international benchmark Brent crude rose over 8% on Friday, and WTI futures for April increased by more than 12%, both breaking above $90 per barrel. Investors are increasingly worried that sustained high oil prices could have severe economic consequences. They are comparing the current situation to the oil shocks of the 1970s, which led to stagflation.

Vikas Devedi, Global Energy Strategist at Macquarie, said, “We are increasingly confident that if no agreement is reached and all military actions are not quickly halted, the oil market could start to collapse within days, not weeks or months.”

“Based on our analysis, a closure of the Strait of Hormuz for several weeks could trigger a series of chain reactions, potentially pushing oil prices to $150 per barrel or higher,” he added.

However, Wall Street’s expectations that oil prices will exceed $100 per barrel are not entirely uniform. Goldman Sachs analysts have set a second-quarter target of $76 per barrel, while also acknowledging that prices could stay around $80 before March.

“Nevertheless, our risk to oil price forecasts is clearly skewed to the upside. The key variable is the duration: how long will the Strait of Hormuz and most of the Persian Gulf’s oil and refined products be blocked?” Daan Struyven, Head of Oil Research at Goldman Sachs, said in an interview.

Below are some key perspectives from Wall Street on oil prices and their potential impacts:

$80–$90 per barrel

First, oil prices may have already reached a level that could trigger more serious economic consequences.

Nic Puckrin, Chief Market Analyst at Coin Bureau, wrote in a report this week that if oil prices “significantly” break above $80 and stay there for several weeks, it could start to boost inflation prospects.

“If oil prices surge above $90 and remain high as energy infrastructure disruptions intensify, this could quickly evolve into a long-term structural shift,” he said.

$100 per barrel

José Torres, Senior Economist at Interactive Brokers, said that reaching $100 per barrel would mark a true oil shock. He added that if prices hit that level, markets might react similarly to the inflation seen after the Russia-Ukraine conflict erupted. He referred to the U.S. consumer price index rising by as much as 9% year-over-year, with energy prices also climbing.

In this scenario, Torres expects inflation to rebound to around 3%. He also noted that the Federal Reserve’s rate-cut prospects would be hindered, increasing the risk of stagflation.

“That’s the risk. So we might experience a (stock market) downturn this year,” he added.

Morgan Stanley’s Chief Investment Officer and a staunch bull on Wall Street stocks, Mike Wilson, also said that he believes reaching $100 per barrel could overturn his bullish outlook on stocks. He pointed out that this is mainly due to the impact of oil prices on economic growth, citing his team’s analysis of historical stock performance following oil price surges.

The bank wrote in a client report this week that if oil prices reach $100, the year-over-year increase could be 75%–100%, and historically, such ranges often lead to poor stock market performance.

Wilson added, “Given the recent events in Iran and the Middle East, the worst-case scenario for stocks is: a sharp rise or sustained increase in oil prices, which threatens the durability of the economic cycle.”

$120 per barrel

Bruce Richards, CEO of Marathon Asset Management, a U.S. hedge fund, said that oil reaching $120 per barrel could trigger a recession in the U.S. He emphasized that rising oil prices could create a stagflation environment.

“When Brent crude hits $120, economic growth would be zero. That’s the trigger for a recession. That’s what I believe, and I think the market shares that view, even if no one openly admits it,” he added.

Nobel laureate Paul Krugman also predicted that if oil prices rise to $120, it would have significant negative effects. He stated that such a surge could increase overall inflation by about 1 percentage point and heighten recession risks.

Krugman said he does not believe that oil price fluctuations alone will cause a recession or runaway inflation, but he sees the risks more tilted to the downside. He also pointed out that the U.S. economy is already under pressure from other factors, such as a weak labor market.

(Source: Cailian Press)