Economic Impact of U.S.-Iran Hostilities
Professor Geoffrey M. Heal discusses the economic impact of U.S.-Iranian hostilities following the death of General Qassem Suleimani and Iranian retaliation.
Geoffrey Heal, Bernstein Faculty Leader
January 6, 2020
The big issue here is whether Iran and its proxies will attack Saudi Arabian refineries again - as they did quite recently - or whether they will try to block oil tankers from passing through the Straits of Hormuz. The US has significant naval presence in the straits but it would still be easy for Iran to reduce the flow of oil out from the Gulf. In either event we could see a spike in oil prices up into the $80 range, probably not for long. Even without such events we will see a risk premium built into the price of oil as long as there is heightened uncertainty. This is good news for US frackers, who have been hurting financially recently and struggling under large debt burdens. A few extra dollars on the price will be very positive for them.
Of course a real war between the US and Iran, with heavy US attacks on Iran, would really close the area to business and send the price of oil up even higher than $80 - possibly towards $100. In any event, the US will be exposed to these higher prices so this will affect US consumers, but there will be no oil shortages in the US.