$150 oil and stagflation: Wall Street mulls over Israel-Hamas war risks

Veteran Wall Street and energy analysts predict oil prices could rise to $150 a barrel because of the Gaza conflict—potentially leading to a combination of higher inflation and recession (aka stagflation.)

Speaking on Bloomberg TV on Oct. 16, Energy Aspects’ research director and co-founder, Amrita Sen, said: “Any escalation would [send the price of oil up to $150], because ultimately, inventories across the board are super low—of diesel and gasoline—products in particular because refining has really struggled.”

Sen isn't the only one. JPMorgan’s head of EMEA energy equity research, Christyan Malek, warned of $150 oil shortly before the Gaza conflict even began.

Malek told Bloomberg on Sept. 22, “Put your seatbelts on. It's going to be a very volatile supercycle,” warning the price of a barrel could surge to $150 by 2026.

The JPMorgan analyst based his projections on OPEC cutting oil production, mostly led by Saudi Arabia. With the war in the picture, Malek's prediction now gains a whole new catalyst.

How raging oil prices fuel consumer inflation

Oil prices over the past week ranged between $87 (WTI) and $91 (Brent Crude), according to the U.S. EIA. At today's prices, an increase to $150 would require a historic price shock.

In fact, it would be the highest oil has ever gone. (The record was $128 during the financial crisis in June 2008, while the second highest was $113 a barrel in June 2022.)

Sen said any further involvement by Iran or the U.S. in the Gaza conflict could lead to a drastic price spike. Should that happen, it would likely goose consumer inflation to return despite Fed attempts to whip high prices by raising interest rates.

Higher oil prices wouldn't just mean steeper bills at the pump; they'd also raise production and freight costs in the supply chain, potentially adding to final product prices across the board.

Such a domino chain would put the U.S. economy in a really tough spot because the Fed has already raised interest rates at a pace unseen since the 1980s.

Stagflation could be next if war slows the economy

If armed conflicts overseas become prolonged or spread to other countries, economic growth in the U.S. might pause.

Prolonged geopolitical conflicts often cause sudden and unpredictable changes to energy prices, supply chain costs, and consumer spending behavior in response. And markets and businesses abhor uncertainty.

In fact, historical data shows that oil shocks have almost always sparked recessions.

If that happens this time around while prices are rising, there's a good chance the economy will face “stagflation,” according to analyst Ed Yardeni of Yardeni Research.

“If the price of oil breaches $100 per barrel and the price of gasoline rises solidly above $4.00 a gallon and both remain above those levels for a while, they could trigger a renewed wage-price spiral and higher inflationary expectations,” he warned.

“That scenario would be reminiscent of the 1970s.”