Will oil price surge continue? Top energy advisor: May soon surpass 2008 financial crisis peak!

Caixin March 19 News (Editor Huang Junzhi)
Amid ongoing stalemate in the US-Iran conflict, a top energy advisor warns that oil prices could soon rise to levels unseen since the 2008 financial crisis.

Bob McNally, a former White House energy advisor to President George W. Bush and analyst at Rapidan Energy, said Wednesday that due to supply disruptions caused by the US-Iran war, there is still significant room for oil prices to increase. In a recent interview, he depicted a scenario where crude oil prices could surpass the peak levels seen during the last financial crisis within a few weeks.

Although the US-Iran conflict has entered its third week, there appears to be no end in sight, with the international benchmark Brent crude oil price soaring 80% this year. After Iran vowed retaliation and launched a series of military actions, Brent again broke the $110 mark. If oil prices indeed rise beyond the 2008 high of $147 per barrel, as McNally suggests, it would mean a 34% increase from current levels.

McNally stated: “Oil prices will keep climbing until the pain becomes enough to slow economic growth, reduce demand, and then we’ll face a free-fall decline.”

However, he also pointed out that the outlook remains uncertain, and he speculated that once oil prices peak, US economic data could be impacted.

Since the start of the war, markets have been concerned about the impact of rising oil prices, but McNally said that even if crude hits $100 per barrel, it is still well below the “pain threshold” for the economy.

Additionally, McNally mentioned that oil prices will continue to rise unless one of two scenarios occurs, though he also noted that he believes both are unlikely in the near term.

1. The US and Israel reach a ceasefire agreement with Iran
A ceasefire might be a way to end the surge in oil prices. If the US and Israel can reach an agreement with Iran, oil and other energy supplies could once again flow through the Strait of Hormuz.

He said: “The problem is that a ceasefire requires mutual agreement, and Iran is clearly not ready for a ceasefire yet.”

2. The US can weaken Iran’s ability to threaten oil transportation
Another way to curb prices is for the US to weaken Iran’s capacity to blockade the Strait of Hormuz. McNally said the US could target Iran’s anti-ship cruise missile sites, drone bases, and artillery, but such actions might take several weeks to complete.

Meanwhile, he also mentioned that the US could send escort ships to help oil tankers pass through the strait, thereby increasing oil supplies, but this approach also seems unlikely at present.

McNally said: “Typically, after several weeks of intense attacks on Iran, escort ships are dispatched. You wouldn’t put escort ships at the front lines because they would be attacked by facilities we haven’t destroyed yet.”

He believes that since there are no signs of increased supply, the only way for prices to go is up.

McNally stated that no one knows at what price level demand destruction might occur, but considering that petroleum products like gasoline are essential for consumption, this level could be higher than some expect.

“We can’t do without gasoline, so we have to pay,” he added.