Impact of Middle East Conflict on Global Oil Demand
Mike Somers, the president and CEO of the American Petroleum Institute, discussed on *Morning with Maria* how wars in the Middle East are influencing global oil demand.
With oil and gas prices climbing, the global economy is undergoing an energy price shock. However, a recent analysis from Goldman Sachs indicates that the ongoing conflict is unlikely to trigger a widespread supply chain crisis similar to that seen during the COVID-19 pandemic.
According to Goldman Sachs economists, the unrest in Iran could elevate oil prices, potentially lowering global economic growth by around 0.3 percentage points. Furthermore, they project an increase in headline inflation of about 0.5 to 0.6 percentage points next year, alongside a modest rise in core inflation of only 0.1 to 0.2 points.
The report highlights that if the Strait of Hormuz remains closed to navigation, the risks could amplify. This strait serves as a crucial passage for shipping traffic from the Persian Gulf to the world’s major sea routes.
Goldman Sachs notes that central banks worldwide will likely remain on high alert regarding inflation due to the supply chain disturbances stemming from the pandemic. This makes them a significant factor in inflation discussions. Yet, the analysis suggests that the supply shock linked to the Iran conflict is predominantly confined to the energy sector and does not extend to broader supply chains.
“What sets the current situation apart from 2021-2022 is that today’s disruptions are primarily focused on energy,” economists at Goldman Sachs wrote.
The report also indicates that many developed nations such as the U.S., European countries, Japan, and Canada have minimal non-energy trade ties with Middle Eastern nations, with less than 1% of their imports coming from that region. In contrast, China and East Asia constitute over 20% of global trade, according to their analysis.
Another factor is that potential bottlenecks in the Middle East are mainly related to specific chemicals and metals. This means there is a lower likelihood of significant disruptions, especially regarding critical raw materials and inventory management.
Goldman Sachs identified methanol as a likely concern, as it plays a role in producing acetic acid, which is vital for industrial adhesives, solvents, and paints. While Iran contributes about 20% to global production capacity, the current outlook doesn’t present immediate challenges.
In summary, Goldman Sachs suggests that the primary risks to global supply and inflation are largely focused on energy. This limits the prospect of a return to the severe disruptions and inflation spikes seen in 2021-2022.
