Oil prices are expected to rise again following renewed US attacks on Iran that have led to the closure of the Strait of Hormuz, a critical passage for global oil trade. The US, facing its lowest strategic petroleum reserves in over 40 years, is likely to struggle to keep oil prices below $100 per barrel as it has during the conflict so far.
Analysts warn that sustained oil prices above $100 could accelerate inflation, reduce consumer spending, and increase the risk of recession.
Attention has turned to China, the world's largest oil buyer, which holds significant but undisclosed strategic petroleum reserves. Since April, China has reduced its oil imports by 3.5 million barrels per day, helping to moderate prices. However, recent indications suggest Beijing will not use its reserves to cushion the impact of rising oil prices amid the Iran war, potentially setting the stage for China to be blamed as prices climb.
The situation worsened after a US blockade on the Strait of Hormuz took effect on July 14, following attacks on UAE tankers. The worst-case scenario involves a prolonged disruption of oil flow through both the Strait of Hormuz and the Bab al-Mandab Strait.
Dr Andy Xie, a Shanghai-based independent economist, highlights these developments and their implications for global economics and financial markets.
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