What a US-Iran war could mean for the economy

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An escalation of hostilities after a U.S. airstrike killed a leading Iranian military commander could send shock waves through the global economy, analysts said.

"The assassination of Qassem Soleimani, a key figure in the Iranian regime, in a U.S. airstrike last night has significantly increased the likelihood of a direct conflict between the United States and Iran," wrote Jason Tuvey, senior economist for emerging economies Friday note.

"Our central scenario is that the global economy will bottom out earlier this year and then recover," he added. "But the outbreak of war between the United States and Iran would put the recovery on hold."

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Qassem Soleimani, head of the corps of the Islamic Revolutionary Guard of the Iran & # 39; Quds Force, was killed in an airstrike in Baghdad by President Donald Trump, the & nbsp;Ministry of Defense said in a statement on Thursday.The Department of Defense said Soleimani is actively targeting American personnel in the region. "data-reactid =" 18 "> Qassem Soleimani, head of the Quds Force of the Islamic Revolutionary Guard Corps, was killed in an air raid in Baghdad to attack the region.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Iran's Supreme Leader Ayatollah Ali Khamenei & nbsp;vowed to inflict "severe retribution""data-reactid =" 19 "> Iranian Supreme Leader Ayatollah Ali Khamenei vowed to impose" severe retaliation "on those involved in Soleimani's death, cited by the media.

"Clearly, the biggest concern of the global economy is that events are getting out of control and the US is launching a major military attack on Iran," Tuvey said. "The resulting collapse of the Iranian economy could add up to 0.3 percentage points of global GDP, which is our estimate of the damage from the US-China trade war."

The Iranian-owned Sabiti oil tanker will sail in the Red Sea on October 11, 2019. The photo was taken on October 11, 2019. National Iranian oil tanker company via WANA (West Asia News Agency) via REUTERS.

<p class = "Canvas-Atom-Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The developments have messed up the global markets and Brent crude oil promotes futures (BZ = F) immediately 4% higher. Port assets, including gold and government bonds, rose as US equity futures tumbled in early trading. "Data-reactid =" 32 "> Developments on the world markets ensured that the Brent crude oil futures (BZ = F) rose by 4% immediately afterwards. Emagazine.credit-suisse.com/app/art .. Port assets, including gold and government bonds, rose as US equity futures fell in early trading.

<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Rising oil prices are an excise tax."data-reactid =" 33 ">Rising oil prices are an excise tax

However, the more important impact for the rest of the world would be a sustained rise in oil prices.

"Our basic case is that a war between the United States and Iran is unlikely," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note on Friday. "However, the infrastructure of the oil sector is a likely target in the event of an escalation."

<p class = "Canvas-Atom Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "With one possible method of retaliation, Iran could try the Strait of Hormuz close, an important passage for more than a fifth of the world's mineral oil consumption and a region in theThe US Energy Information Administration called "The most important choke point in the world." The country haspreviously threatened to disrupt broadcasts in the Strait of Hormuz in response to US attempts to slow down the Iranian economy. "data-reactid =" 36 "> In one possible retaliation method, Iran could try to block the Strait of Hormuz, an important passage for more, more than a fifth of the world's mineral oil consumption and a region covered by the US Energy Information Administration is described as "the most important chokepoint in the world." The country previously threatened to disrupt deliveries in the Strait of Hormuz in response to US attempts to stifle the Iranian economy.

In this scenario, Tuvey expects Brent crude oil prices to rise to $ 150 a barrel, which will increase inflation in the OECD countries by around 3.5 to 4.0 percentage points, Tuvey said.

And, as Shepherdson noted, higher oil prices create "a tax on oil consumers and a lucky break for producers."

"Global oil consumption is around 100 million barrels a day. Every fifth dollar corresponds to an annual tax of around $ 183 billion a year, or 0.1% of global GDP," he said.

<p class = "Canvas Atomic Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The likelihood that the Federal Reserve will respond toInflation driven by oil prices rises& nbsp; with higher interest rates remains lean, he said, "given their understanding of the impact of higher oil prices, the tense situation on the job market, and the upcoming rise in core inflation due to customs clearance and a number of adverse base effects." & nbsp; "data-reactid =" 40 "> Given its understanding of the impact of higher oil prices, the likelihood that the Federal Reserve will respond to higher inflation rates due to oil price inflation is small, however, the tense situation on the job market and the impending rise in core inflation due to the wage change and a number of adverse base effects. "

"The Joker card is whether the turmoil in the Middle East will trigger a continued sell-off in stocks and push confidence in businesses and consumers to the point where concerns about the labor market and inflation become secondary," said Shepherdson.

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