Major Investment Banks Raise Oil Price Forecasts Amid Middle East War... Emerging Economies Hit Hard

As of April 28 (local time), the war between the United States and Iran has reached the two-month mark, and there are growing projections that, if the Strait of Hormuz is not normalized, the price of Brent crude oil futures-the global benchmark-could reach as high as $130 per barrel in the second quarter of this year. This would further exacerbate the difficulties facing emerging economies already struggling with inflation driven by rising oil prices.

An oil tanker near the Strait of Hormuz on the 12th (local time). Photo by Reuters Yonhap News.

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According to reports from The Wall Street Journal (WSJ) in the United States and the Financial Times (FT) in the United Kingdom on April 27, global investment banks such as Goldman Sachs and Citigroup have raised their forecasts for international oil prices in succession. This adjustment comes after U.S. President Donald Trump canceled the dispatch of a U.S. delegation that was scheduled to travel to Islamabad, Pakistan on April 25 for peace talks with Iran.

Goldman Sachs now forecasts that Brent crude oil futures will reach $90 per barrel in the fourth quarter of this year, raising its previous estimate from $80. Citigroup also increased its second-quarter forecast for Brent crude oil from $95 to $110 per barrel. The bank further analyzed that if normalization of the Strait of Hormuz remains difficult through the end of June, Brent crude prices could reach $130 per barrel during that quarter.

Expectations for market normalization through peace negotiations have also diminished. Analysts at Goldman Sachs noted that the recovery of production in the Persian Gulf region is slower than anticipated and predicted that exports will not be normalized by the end of June this year. Current oil production losses are estimated at approximately 14.5 million barrels per day. Citigroup also pushed back its projection for resumption of shipping from mid-April to the end of May. Citigroup stated, "Even if logistics resume, commercial and strategic inventories will need to be rebuilt, meaning that oil prices could structurally remain high for years, not just months."

The economic ripple effects of the Middle East war are particularly pronounced in Middle Eastern countries and emerging market economies. The International Monetary Fund (IMF) recently released its April World Economic Outlook, revising down its growth forecast for emerging and developing economies by 0.3 percentage points, from 4.2% to 3.9%. Emerging Asian economies are also considered "vulnerable" due to their high dependence on oil and gas imports via the Strait of Hormuz. In particular, JP Morgan anticipates that Qatar’s economy, which has been directly affected by export route blockages and airstrikes, will contract by 9% this year.

Rising energy prices and inflationary pressures have reduced the scope for "rate cuts" by central banks in emerging markets, prompting a shift toward "rate hikes." The Philippines raised its policy rate last week, and countries such as Turkiye, Poland, Hungary, the Czech Republic, India, and South Africa are also adopting a more hawkish (tightening) monetary stance. JP Morgan noted that the market is reflecting expectations that monetary policy in most of the 15 major emerging economies will become even more restrictive over the next six months.

The reduction in policy flexibility is also evident among central banks in advanced economies. The U.S. Federal Reserve (Fed) and the Bank of Japan (BOJ) are both expected to keep their benchmark interest rates unchanged at this month's monetary policy meetings. Before the outbreak of the Middle East war, the Fed had been expected to cut rates twice within the year. The BOJ was projected to maintain a tightening bias over the medium to long term, but is now reportedly concerned that implementing a rate hike could cause significant economic shock.

Some analysts warn that there is a renewed risk of hardship for low-income countries that have already experienced economic crises, such as Egypt, Sri Lanka, and Pakistan. The impact on low-income countries in Sub-Saharan Africa is also estimated to be significant. The IMF believes that an additional $20 billion to $50 billion in emergency assistance may be needed as a result of the current crisis.

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