New Delhi

The global economy is currently experiencing an unprecedented 'dangerous time' as tensions in West Asia continue to escalate, according to Daniel Yergin, Vice Chairman of S&P Global.

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In a recent conversation with CNBC's 'Squawk Box Asia,' Yergin predicted that Israel's response to these tensions will be significantly more intense than previous encounters.

Since the outbreak of the Israel-Hamas conflict on October 7 of the previous year, the oil market has remained relatively stable. This stability has been supported by increased production in the United States and sluggish demand from China.

However, this dynamic is beginning to shift as concerns over oil supplies grow. Recently, oil prices surged amid fears that Israel might strike Iran's oil sector in retaliation for a missile attack from Tehran, spurring analyst concerns about potential threats to supply.

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During a White House press briefing, President Joe Biden stated, "The Israelis have not finalized their approach regarding a strike that's currently being deliberated," while advising Israel against targeting Iranian oil installations.

Last week, both major oil benchmarks recorded their largest weekly increase since March 2023. On Tuesday, Brent crude fell by 1.77 per cent, settling at $79.50 per barrel, while West Texas Intermediate dipped by 1.83 per cent to $75.77 a barrel.

Yergin emphasized that Israel's forthcoming retaliation is likely to be more formidable than previous encounters. Last April, although Iran and Israel engaged in hostilities that involved missile attacks, a full-blown war was averted. However, as tensions grow, Yergin warns, "I believe it's a very perilous time, one unlike any we have encountered before."

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The specter of nuclear weapon capabilities also looms over the situation. While uncertainties remain about Iran's operational nuclear weapons, Yergin highlighted that this concern is especially pronounced for Israel. He noted, "The prevailing assumption is that the Israelis would refrain from targeting the nuclear facilities at this moment. However, in the coming weeks or months, Iran may achieve the capability to deliver a nuclear weapon, escalating the situation." He drew parallels between this situation and the 1962 Cuban Missile Crisis.

In contrast, Pavel Molchanov, managing director at investment services firm Raymond James, pointed out that Israel's main worry is Iran's nuclear capabilities over its oil infrastructure. Estimates by Iran Watch suggest that Iran's nuclear program could enrich enough uranium for five nuclear weapons within approximately a week, posing a significant threat.

What can be the worst-case scenario?

The worst-case scenario could involve Iran independently blocking the Strait of Hormuz, a critical passage for about 20 per cent of the world's daily oil production, according to the US Energy Information Administration. Such a blockade could drastically increase shipping costs, cause supply delays, and potentially drive oil prices beyond $100 per barrel.

Hence, as global markets brace themselves for potential escalation of conflict in West Asia, the implications of these tensions could have international ramifications, affecting oil supplies, prices, and overall economic stability.