Standard & Poor’s warned on Tuesday that any high-level response of Iran to U.S. and EU oil embargo, could boost oil to $150 a barrel and push global economies into a recession.

 

Iran might respond to sanctions with “low-level provocation” such as slowing shipping through the Strait of Hormuz, keeping oil prices at their currently high level, according to three Standard & Poor’s reports.

 

Iranian authorities could disrupt supplies of oil from the Persian Gulf by imposing tanker inspections or boarding merchant ships in its territorial waters, supporting oil prices because markets would increasingly view armed conflict as “a real, if remote, possibility,” according to the reports’ authors, who include Paris-based Jean-Michel Six, S&P’s chief economist for Europe.

 

The likelihood of severe disruption of oil supplies through the strait, through which 20 percent of the world’s oil flows, is “low,” though if one did occur, it might boost oil to $150 a barrel and push economies into a recession, according to the reports.

 

“For oil-producing sovereigns of the Persian Gulf Cooperation Council -- Saudi Arabia, U.A.E., Qatar, Kuwait, Oman, and to a lesser extent, Bahrain -- higher oil prices would actually be beneficial,” said Elliot Hentov, an S&P credit analyst in Dubai. “As oil exporters, they would receive more foreign earnings that they could either use to stimulate demand or improve their government’s balance sheets.”

 

The three S&P reports discuss the impact of rising Persian Gulf tensions on Middle Eastern states seeking to borrow money, the risks that a closure of Hormuz would pose for companies looking for credit and the threats to global economic growth from an oil shock.

 

(Source: Bloomberg)