Financial Institutions Warn of Persistent Oil Price Spikes

Oil prices remain $25 above pre-invasion levels roughly 200 days after the United States and Israel attacked Iran. Morgan Stanley warns that depleted European inventories and curtailed refinery capacity leave the market vulnerable to further disruptions, projecting that core inflation could reach 2.7% by late 2027, exceeding Federal Reserve projections.

Bank of America further cautioned that prices could exceed $150 a barrel if the war continues to strain global inventories. Strategists at the bank raised their year-end Brent crude forecast from $83 to $95 a barrel, citing damaged infrastructure and escalating geopolitical tensions. While escorted shipments through the Strait of Hormuz and alternative routes have provided some relief, analysts conclude that rapid market normalization is unlikely.

Economists warn that if the conflict persists, firms will treat these higher costs as permanent, triggering second-round effects on core inflation. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, indicated that central banks may maintain higher interest rates because large supply shocks are now more likely to be persistent than temporary.