Brussels, Belgium. Morningstar DBRS said crude oil prices have risen sharply since coordinated attacks by the United States and Israel against Iranian military targets began on February 28, increasing political risk and disrupting energy flows.
Morningstar DBRS assessment
In a publication following the breakout of the conflict, the ratings agency said higher crude prices reflect increased geopolitical uncertainty and the potential interruption of supply, as shipping authorities and carriers have halted traffic through the Strait of Hormuz, a chokepoint through which around 20 per cent of the world’s crude oil and seaborne natural gas passes.
The agency said the loss of Iranian barrels is likely to have a smaller impact on crude prices because Opec+ spare production capacity provides a buffer to global markets.
“We believe that there is too much uncertainty to determine whether crude oil prices will remain high, and this will largely depend on how the conflict evolves,” said Ravikanth Rai, deputy managing director for energy and natural resources ratings at Morningstar DBRS.
“As such, there is no change to our mid-cycle price assumptions, and therefore we are not considering any rating actions at this time,” Rai added.
ECB warning on inflation and growth
The European Central Bank on Tuesday warned that a prolonged conflict in the Middle East and sustained reductions in energy supplies could trigger a sharp rise in eurozone inflation and weigh on regional growth.
“An escalation of conflict in the Middle East has been one of the main risk scenarios tracked by the ECB,” said Philip Lane, member of the executive board of the European Central Bank, referring to scenario analysis published by Eurosystem staff in December 2023.
“Eurosystem staff published a scenario analysis in December 2023 that indicated there would be a substantial spike in energy-driven inflation and a sharp drop in output if a conflict led to a persistent drop in energy supplies and disruptions in regional economic activity,” he said.
He added that “the impact would be amplified if it also gave rise to a repricing of risk in financial markets”.
“Directionally, a jump in energy prices puts upward pressure on inflation, especially in the near term, and such a conflict would be negative for economic activity,” he said.
How do you think further disruptions in the Strait of Hormuz could affect energy prices and inflation?
