(LibertySociety.com) – Economic experts have sounded the alarm over increasing oil prices as a result of the continued Houthi rebel attacks on commercial ships navigating through the Red Sea. Fears of global inflation drove up Brent crude by four percent on January 12, reaching a high of $80.75 a barrel. The United States and United Kingdom’s retaliatory strikes on Houthis in Yemen also caused a jump in US West Texas Intermediate crude. The rebel group’s attacks began in response to Israel’s military operations in Gaza after the October 7 Hamas terrorist attack in Israel. The instability has prompted most large shipping companies to reroute around Africa’s Cape of Good Hope, resulting in 10 additional days of travel time.
The longer route has driven up shipping costs, which will undoubtedly be passed down to consumers in the upcoming months. Economists believe that the increased oil prices and extended shipping times will halt further reduction to inflation, with some arguing that it could cause an increase. Ana Boata, who oversees macroeconomic research at Allianz Trade said that the United States and Europe could see a reduction in economic growth and increased inflation by 0.7 percentage points if the conflict in the Red Sea continues for many more months. JPMorgan’s chief executive Jamie Dimon said that “we must be prepared for any environment,” citing the uncertainty caused by the Middle Eastern conflict and the war in Ukraine. He believes that many sectors could be affected, including food markets and overall economic relationships.
Shipping costs have increased three-fold since late 2023, but are still 75 percent lower than they were in 2021 amidst the pandemic and the Ever Given container ship blockade of the Suez Canal. With the increased cost of living, higher interest rates, and lower consumer demand, economists noted that the global economy is already weakened.
Chief economist for the Chartered Institute of Procurement and Supply, John Glen, is concerned about increased escalation in the Middle East. He said that “the really scary thing would be” if a conflict were to arise in the Gulf of Oman or the strait of Hormuz, which is vital to oil and gas transportation.
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