By Dev Chandrasekhar
The United States has commenced airstrikes on locations within Syria linked to Iranian-associated factions. This aggression reaffirms the US’s earlier threats to Iran, intensifying the already simmering tensions in the unstable Middle East. While the US’s principal claimed reason behind the strikes is “self-defense”, the potential ripple effects of these aggressive actions could result in a global oil shortage and economic instability.
Should Iran retaliate to these US incursions in Syria, a perilous cycle of escalation and reprisals could ensue. In anticipation, the US is deploying more security personnel and potentially mobilizing carrier strike groups, emphasizing their objective of defending their interests, particularly pertaining to oil.
A key worry includes the US potentially zeroing in on Iranian oil. If executed, this could sharply reduce the worldwide supply of oil, resulting in skyrocketing oil prices. This potential action might align with the US’s economic warfare strategy against Iran, with threatened plans in the pipeline to ally with Israel to destroy Iran’s oil fields. Such military measures could drastically undermine Iran’s economy, but the repercussions resulting from an interruption of Iranian oil production are extensive and long-lasting.
Should Iran’s fields get taken out, global oil consumption could lose over 3% of production, leading to higher prices and a scramble to replace the missing supply.
Owning the world’s third biggest proven oil reserves at around 209 billion barrels, more than Canada and just below Saudi Arabia. positions Iran as a significant contender in the global oil market. Any disruption in its oil supply could intensify the existing oil shortage, a situation that could drag on for years. Adding to this precarious situation is Iran’s declaration to retaliate further if the US continues its support for Israel, potentially propelling the region into an unparalleled catastrophe.
Crude oil prices have already soared past the $90 mark. The Middle East is the oil artery that supplies the modern global economy. In the event of a land-based conflict in the Middle East culminating in the potential closure of the critically important Strait of Hormuz. A significant disruption at this critical flow point could lead to the collapse of several global supply chains.
inflation expectations in the US are up–from 3.2% last month to a 4.2% in October. Several such factors, including global inflation growth and thus interest rate-rise expectations, rising oil prices, and Middle Eastern tensions on top of the ongoing Ukraine-Russia war, collectively contribute to the mounting risks.
The situation is further exacerbated by elevated oil prices, hefty government spending, and President Biden’s ambitious $100-plus billion plans to fund global conflicts. The potential inclination of prioritizing funding to Israel over Ukraine, as suggested by recent political developments, further complicates the already volatile situation. The longer the widening conflict in the Middle East drags on, the more likely we are to see a financial bombshell triggered by high oil prices and spending by the major economies.
For example, Japan, which heavily depends on the Middle East for its energy needs, stands on the brink of an economic meltdown. The effects of this collapse would echo on a global scale, potentially inciting a disastrous oil crisis and instigating a downfall of the global economy. With increasing pressures and strained economies, the global community watches with heightened concern, aware of the potential domino effects likely to be triggered by these events and pushing the global economy closer to recession.
(Dev Chandrasekhar advises corporates on the “Big Picture”. The views expressed are personal opinion of the author.)