Analysts at Oxford Economics have warned that oil would surge if the Strait of Hormuz were to be closed, which would knock share prices sharply lower.
They explain:
The Middle East conflict adds considerable uncertainty to the outlook for oil prices. So far, supply is unaffected, and we think the modest risk-premium-driven rise is likely to have limited impact on the global economy or risk assets.
However, a further escalation – particularly one which results in the closure of the Strait of Hormuz – would be more damaging. In a scenario where a closure caused the oil price to spike to around $130 per barrel, our macro team projects global growth would be approximately 0.3% below our current baseline in 2026, with world and US CPI inflation peaking at almost 6%. We think equites would sharply sell off in this scenario as investors price in a more stagflationary environment.
However, we wouldn’t anticipate a renewed bear market as the shock is unlikely to be enough to tip the global economy into recession. The lesson from previous geopolitical crises is that the impact on equity markets tends to be short-lived if an economic downturn is avoided.
