The ticking time bomb facing the global economy
So far, Israel's attacks on Iran have been largely confined to its nuclear facilities, its military assets and leadership and its domestic energy infrastructure. It's energy exporting infrastructure hasn't yet been targeted.
Markets have been unsettled, rather than disrupted, and the impact of the outbreak of hostilities relatively muted. The oil price did shoot up 7 per cent on Friday, but sharemarkets weakened only slightly, US bond yields fell back modestly, the US dollar strengthened marginally and the gold price rose.
In 2022, oil prices soared above $US100 a barrel and then climbed towards $US130 a barrel after Russia invaded Ukraine. On Friday, the oil price leapt nearly 13 per cent before settling back to close 7 per cent higher at just over $US74 a barrel. It traded around $US75 a barrel over the weekend.
The relative calm in markets in response to the latest conflagration in the Middle East signals that traders believe the hostilities can be contained and that oil supplies won't be disrupted.
That could, of course, change. Iran is a major oil producer, with production volumes of about 3.4 million barrels a day, or about 3 per cent of the world's oil supply. It exports about 1.7 million barrels a day, mainly to China and, to a lesser extent, India.
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Should its oil fields and pipelines be targeted by Israel, it would have a material impact on global supply.
That impact, however, could probably be absorbed relatively comfortably by a market where there is substantial dormant capacity because of OPEC+'s voluntary production cuts and where the market is currently over-supplied.
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