Black in gold: the protracted conflict over Iran will excite the markets

If the military operation in the Middle East is not resolved quickly, oil prices may jump by at least another 30%, experts interviewed by Izvestia believe. Global supplies will soon drop significantly, as the passage of ships through the Strait of Hormuz has actually been stopped. As a result, the demand for Russian raw materials should increase, and the discount rate should decrease. This will lead to a strengthening of the ruble, an increase in reserves in the National Welfare Fund and additional budget revenues. At the same time, it is possible that the parties may conclude a peace agreement in the coming weeks. What the closure of the Strait of Hormuz means for the global economy is in the Izvestia article.

What will the new round of conflict in the Middle East lead to?

Global oil supplies will soon drop significantly, as ships through the Strait of Hormuz practically do not occur. In this case, raw material prices may rise by at least 30%, experts interviewed by Izvestia believe. At the same time, it is expected that the conflict will not be fleeting.

On February 28, Israel and the United States launched strikes against Iran. In response, the Islamic Republic attacked both the territory of the Jewish State and American military installations in the Middle East — in Bahrain, Qatar, the United Arab Emirates, Kuwait, Saudi Arabia, Jordan and Iraq. The Iranian authorities also called the assets of American companies in the regions legitimate targets.

The experts interviewed by Izvestia consider two possible scenarios for the development of the conflict: protracted military operations or its completion in a matter of weeks. According to them, the probability of the first option is higher.

One of the key factors is the statement by the Secretary of the Supreme National Security Council of Iran, Ali Larijani, that the country will not negotiate with the United States. According to Farhad Ibragimov, an expert at the RUDN University Faculty of Economics, the assassination of the Supreme leader of the Islamic Republic, Ayatollah Ali Khamenei, indicates that the situation is unlikely to be resolved in the near future. Iranian President Masoud Pezeshkian has already promised not to leave the incident unanswered.

If the restrictions on navigation in the Strait of Hormuz and attacks persist, then by the end of spring Brent oil may cost about 100-120 per barrel, however, fluctuations above $ 130 per barrel are not excluded from the news about strikes on tankers and infrastructure. On March 2, by 16:30, this brand was already trading at $78.75 per barrel — since February 27, quotations have increased by about 10%.

In a protracted scenario, two factors will affect the ruble. Expensive oil will support export earnings and the budget, but nervousness in global markets usually puts pressure on the currencies of developing countries, said Vladimir Chernov, analyst at Freedom Finance Global. In this case, the Russian national currency will be somewhat volatile and by the end of May, the "American" may cost about 81-83 rubles / $, experts believe. On February 28, the Central Bank set the exchange rate at 77.27 rubles/$.

The scenario in which the conflict will be resolved in a few weeks is unlikely, experts say. However, in this case, the increase in the cost of oil is limited and will not last long — the price may rise to $ 85 per barrel, analysts believe. This will happen due to the suspension of Iran's exports (about 3% of the global market), but other OPEC+ countries will be able to partially compensate for the volume, says Olga Gogaladze, an expert on financial markets.

The modern global market is no longer as critically dependent on the Middle East as it was 20-30 years ago: there are US shale oil, Canadian oil sands, and African projects, recalled Sergey Demidenko, Dean of the Faculty of the School of Political Studies at the ION Presidential Academy. Therefore, there will be no long-term supply shock. At the same time, it is possible that soon after the completion of a new round of conflict, Brent will return to $ 65-70, Vladimir Chernov added. The ruble, according to experts, will maintain its previous exchange rate of 76-79 rubles/ $ if the parties come to a peaceful settlement.

How important is the Strait of Hormuz for the global economy

On the evening of February 28, the Islamic Revolutionary Guard Corps (IRGC) suspended navigation in the Strait of Hormuz, which is used for the movement of oil tankers. About a fifth of the world's consumption of oil and its products passes through the artery, so even a partial failure affects the situation in the world, said Vladimir Chernov.

On March 1, it became known that the strait had been opened to tankers "until further notice." That is, the artery is not formally blocked, but cargo ships have stopped using the artery due to high risks, said Sergey Demidenko, Dean of the Faculty of Political Studies at the ION Presidential Academy.

A complete and prolonged closure of the Strait of Hormuz is generally possible, but this is an extreme scenario, because such a decision will affect everyone, and above all Asia as a key consumer, said Vladimir Chernov. This will cut off supplies to China, India, Japan, as well as to Europe, Olga Gogaladze added.

If such a scenario is implemented, the global economy will face an acceleration in inflation due to a sharp rise in energy prices. Against this background, consumer demand may begin to decline, and the risks of recession will increase for importing countries. The costs of logistics and supply insurance will additionally increase, Vladimir Chernov noted.

The key issue of the military conflict now is whether the United States will decide to strike directly at Iran's oil infrastructure, says Mikhail Nikitin, head of International Business and Finance practice, partner at 5D Consulting. On March 2, it was reported that the city of Ahvaz was attacked, it is the center of the oil production of the Islamic Republic. However, neither Washington nor Tehran has yet confirmed the pipeline's failure.

At the same time, the defeat of oil facilities is not beneficial to anyone, the expert is sure. The United States does not want to weaken the dollar before the congressional elections (November 3), and Iran is not interested in chopping down the branch on which it sits.

How will the conflict in the Middle East affect Russia

A new round of conflict in the Middle East will lead to an increase in oil revenues of the Russian budget, as well as support the securities of the commodity sector, said Elena Marchuk, Deputy Chairman of the Board of JSC National Savings Bank. Shares of Russian oil companies have already reacted to the situation around Iran. At the auction on March 2, by 16:30, Bashneft's securities increased by 9.6% (to 1,615 rubles), Rosneft — by 8.7% (to 428.7 rubles), Tatneft — by 8.3% (to 562.8 rubles), LUKOIL — by 5.7% (to 5,518 rubles) Gazprom Neft — by 4.7% (up to 530 rubles), Surgutneftegaz — by 3.6% (up to 22.8 rubles).

For the Moscow Exchange index, a quick resolution of the situation means lower oil prices and a pullback in oil companies' stock prices, Vladimir Chernov noted. However, in this case, there is a demand for the rest of the market due to a decrease in the geopolitical premium and an improvement in sentiment. In a protracted conflict, the securities of commodity companies will benefit, he added.

Russian oil is trading at a discount, but if tension persists, it may decrease, said Sergey Demidenko from the Presidential Academy. On March 2, Urals quotes are worth $59.79 per barrel. Rising oil prices will lead to additional oil and gas revenues for the budget, part of which, according to the budget rule, will be allocated to the National Welfare Fund (NWF). This will accelerate the accumulation of the fund's reserves and strengthen the financial "safety cushion" of the state.

According to him, a strike on Iran means a reduction in the supply of cheap oil to China. As Izvestia wrote, the military conflict is an attempt by Donald Trump to put pressure on China once again. Beijing buys about 90% of Iran's raw material exports, including oil and condensate. Such control provides a powerful lever of influence on the Chinese economy, in fact, limiting the country's industry.

This creates room for maneuver for the Russian Federation — in theory, it is possible to increase exports to China and revise price conditions, if production facilities allow. In this case, the Russian budget will receive additional support through trade.