The war in Iran is “incomparable” with any past oil shock in both its scale and its wide-ranging impact on the energy market, BP (BP) chief economist Gareth Ramsay said in comments at an industry event on Tuesday.
“I don’t think you really compare this with any disruption in the past … there’s been no disruption of this scale,” Ramsay said at CERAWeek by S&P Global, a major energy conference. The disruption of the Strait of Hormuz is “every analyst’s study piece or worst nightmare that we thought could never happen.”
Since the war began, futures on international oil benchmark Brent crude (BZ=F) have gained roughly 40%, while those on US benchmark West Texas Intermediate (WTI) crude (CL=F) have picked up more than 30%.
As the war has entered its fourth week, the Strait of Hormuz remains effectively closed, choking off roughly 15 million to 16 million barrels per day of oil from the market, and attacks on key energy infrastructure have disrupted refineries throughout the Gulf.
It’s unlikely that the market will be able to respond quickly enough with new supply, given the weeks- or months-long timelines to launch new production, Ramsay said. “The country with the capacity to bring new production online quickly is on the wrong side of Hormuz,” he added, referring to Saudi Arabia.
While the shock of the conflict is immediately evident in the commodities markets, disrupting the flow of everything from natural gas to fertilizer and helium, the war is also likely to curtail global growth through the ripple effect of rising energy prices.
A 10% rise in oil prices might reduce global economic growth by 0.1% to 0.2%, Ramsay said. A 30% to 40% rise in prices, like the market is now staring down now, could cut a full 1% of global growth, which would represent a “significant global slowdown,” Ramsay said on Tuesday.