War with Iran delivers another shock to the global economy |
WASHINGTON (AP) — The war with Iran is doing collateral damage to the world economy.
The conflict is driving up energy and fertilizer prices, threatening food shortages in poor countries, destabilizing fragile states such as Pakistan, and complicating options for the inflation fighters at central banks like the Federal Reserve.
Causing much of the pain: Iran shut down the Strait of Hormuz — through which a fifth of the world’s oil passes — after the US and Israel launched missile strikes on February 28 that killed Iranian leader ayatollah Ali Khamenei.
“For a long time, the nightmare scenario that deterred the US from even thinking about an attack on Iran and which got them to urge restraint on Israel was that the Iranians would close the Strait of Hormuz,’’ said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. “Now we’re in the nightmare scenario.’’
Israel and the US say they launched the war to eliminate the ongoing nuclear and missile threat posed by the Iranian regime, while also indicating they aim to bring down the current regime by encouraging a popular uprising, though it remains unclear whether the conflict can bring about such a transformation.
With a key shipping route cut off, oil prices have surged — from less than $70 a barrel on February 27 to a peak of nearly $120 early Monday before settling closer to $90. They’ve taken gasoline prices with them.
According to AAA, the average price of US gasoline has shot up to $3.48 a gallon from just under $3 a week ago. Prices could be felt even more significantly in Asia and Europe, which are more dependent on Middle Eastern oil and gas than the United States.
20 million barrels of oil a day go missing
Every 10% increase in oil prices – provided they persist for most of the year – will push up global inflation by 0.4 percentage points and reduce worldwide economic output by as much as 0.2%, said Kristalina Georgieva, managing director of the International Monetary Fund.
“The Strait of Hormuz has to be reopened,’’ said economist Simon Johnson of the Massachusetts Institute of Technology and recipient of the 2024 Nobel Memorial Prize in Economics. “It’s 20 million barrels of oil a day going through there. There’s no excess capacity anywhere in the world that can fill that gap.’’
The world........