Risk of “Wider Expansion” in Middle East Not Ruled Out, Say Analysts

Analysts at RBC Capital Markets are cautioning against a “kneejerk ‘the worst is behind us’ hot take,” explicitly stating that a “wider expansion” of the Middle East military conflict “cannot still be ruled out at this juncture.” They point to the “clear and present risk of energy attacks” from Iranian-backed militias as an ongoing threat. This grim assessment aligns with the International Monetary Fund’s chief, Kristalina Georgieva, who has warned that US strikes on Iran could significantly damage global growth.
The immediate trigger for these concerns is the Iranian parliament’s recent vote to consider closing the Strait of Hormuz, a vital shipping lane for a fifth of the world’s oil consumption, in retaliation for a US attack. Such a move would create an immediate oil supply shock, leading to surging energy prices, increased inflation, and a likely deceleration of global economic activity, creating widespread ripple effects.
Oil prices initially responded with a jump of over 5% on Sunday, reaching a five-month high of $81.40. However, prices later retreated, with Brent crude falling nearly 1% to just over $76 a barrel on Monday. Despite this, the potential for dramatic increases remains, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are substantially reduced for an extended period.
In diplomatic efforts, US Secretary of State Marco Rubio has called any closure of the strait “economic suicide” for Iran and has urged China to use its influence, given its heavy reliance on the waterway. The reported U-turn of two supertankers in the Strait of Hormuz further illustrates the immediate impact of heightened tensions on maritime operations, underscoring the ongoing volatility and the need for vigilance.