The International Monetary Fund warned last Friday that rising oil prices are becoming a threat to the global economy. This rise has been??fuelled??by tensions between western nations and Iran who is facing punitive measures against its crude exports.??The situation in Iran is a risk as it might get hit by Israel in a sudden strike who cannot afford to let the Islamic republic claim nuclear weapons. Supplies sure will tighten if the straits of Hormuz are closed as a result of military action.
Putting the Iranian situation aside, we’ve seen what higher oil prices can result in, it is a scenario we lived through last year. As oil prices rise above a certain threshold, the market sells off stocks as it prices in a recession and reduced oil demand as a result.?? With Brent at $126 a barrel and WTI at $110, will stocks start the selloff in March as a consequence or will oil prices return back to the $90-$100 sweet spot just in time?
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Have a Great Weekend!