Risks of an oil supply shock are rising as Middle East tensions escalate.
Crude oil prices spiked further as worries that a full-scale war between Israel and Lebanese factions could develop. Additionally, the list of potential supply disruptions was already long and this latest crisis is adding to market tensions.
The global economy has been coping with high and rising oil prices for five years, but a choke point may be at hand because the most recent price gains are not being fueled by strengthening demand. Consequently, oil prices are exacerbating the current global economic slowdown.
While it is not clear how the geopolitical situation in the Middle East will play out, any further upward pressure on oil prices will undermine global growth prospects and equity markets, while boosting government bond prices.