RIGA, March 2 (Xinhua) -- The conflict in the Middle East will cause fuel and gas prices to rise across Europe, which will lead to higher inflation than previously projected, said Liva Zorgenfreija, Swedbank's chief economist in Latvia, in an interview on Monday.
Zorgenfreija told the LETA news agency that events in the Middle East have once again highlighted one of the classic global economic risks -- disruptions in energy resource supply chains.
She noted that the escalation of the conflict, including strikes on Iran and its oil infrastructure, a pause in shipping through the Strait of Hormuz, and the rise in ship insurance costs, has triggered a sharp price reaction in the markets.
Roughly one-fifth of the world's oil and gas flows through the Strait of Hormuz. Iranian media reported that the Islamic Revolution Guards Corps had closed the strait to shipping, declaring the waterway unsafe due to U.S. and Israeli attacks. In light of the regional tension, vessel traffic via the strait has dropped considerably since Saturday, according to several sources monitoring ship-tracking data.
Zorgenfreija said the conflict means higher energy prices worldwide, including in Latvia, and in the most negative scenario, Brent oil prices could exceed 100 U.S. dollars per barrel, while gas prices could double.
The rise of energy prices depends on how long the conflict will last, how prolonged the shipping pause through the Strait of Hormuz will be, and to what extent oil and gas production will be disrupted or infrastructure damaged, she noted.
She added that for Europe and Latvia, such a situation means a direct and rapid rise in energy resource prices, exerting pressure on both household expenditures and business costs.
Moreover, secondary effects will come through the prices of other goods and services, resulting in higher inflation than previously forecast, she said. ■