Strait of Hormuz Closure Threatens Global Recession, Citing Energy Analysts

The closure of the Strait of Hormuz until August is threatening the global economy with a recession that would rival the 2008 financial crisis, Bloomberg wrote citing analysis by Rapidan Energy Group.

The advisory firm’s base case assumes that the Strait will reopen in July. In this case, analysts expect "an average oil demand reduction of 2.6 million barrels a day and the spot-market price for benchmark Brent crude peaking near $130 a barrel over the summer."

A more pessimistic scenario, in which navigation via the strait will remain impossible until August, will cause the oil supply deficit to grow to 6 billion barrels per day in the third quarter of the year.

"The current macro setup is less extreme than the 1970s or 2007 to 08," the agency quoted Rapidan analysts as saying in a note. "But that relatively stronger starting point doesn’t neutralize the risk that continued oil price spikes would exacerbate financial and macroeconomic vulnerabilities."

On February 28, the United States and Israel launched military operations against Iran. Major Iranian cities, including Tehran, came under attack. The Islamic Revolutionary Guard Corps later announced a large-scale retaliatory operation against Israel.

US military facilities in Bahrain, Jordan, Iraq, Qatar, Kuwait, the UAE, and Saudi Arabia were also targeted. Iranian authorities subsequently decided to close the Strait of Hormuz to vessels associated with the United States, Israel, and countries that supported actions against the Islamic Republic.