30/ Sep’19

Saudi prince warns Iran war would cause ‘total collapse of the global economy’

Heritage Foundation senior research fellow for Middle Eastern affairs James Phillips speaks about U.S.-Iran relations.

Saudi Crown Prince Mohammed bin Salman says a war with Iran would cause oil prices to skyrocket and be a catastrophe for the global economy.

“The region represents about 30% of the world's energy supplies, about 20% of global trade passages, about 4% of the world GDP,” bin Salman told “60 Minutes.”

“Imagine all of these three things stop. This means a total collapse of the global economy, and not just Saudi Arabia or the Middle East countries.”

The crown prince’s comments come less than two weeks after drone attacks on his kingdom’s oil facilities, for which it implicates Iran, temporarily knocked 5 percent of the world’s production offline, causing prices to soar by more than 14 percent.

Secretary of State Mike Pompeo called the attack an “act of war,” and when asked by “60 Minutes” bin Salman agreed, adding that a “political and peaceful solution is much better than the military one.” Still, he said that all options remain on the table.

“If the world does not take a strong and firm action to deter Iran, we will see further escalations that will threaten world interests,” bin Salman said. “Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven't seen in our lifetimes.” Already, the attack pushed U.S. gas prices higher over the past two weeks.

In a recent note to clients, economists at the London-based research firm Capital Economics agreed.

“War with the US would cause a collapse in Iran’s economy that would directly knock around 0.3%-pts off global GDP – equal to the damage from the US-China trade war so far,” economists Jason Turvey and James Swanston wrote on Sept. 20. “More important to the rest of the world, though, would be the resulting surge in oil prices and increased uncertainty, which would add to the headwinds already facing the global economy.”

They believe Iran would respond to the onset of war by “stepping up disruption of maritime transit through the Strait of Hormuz,” causing Brent crude oil, the international benchmark, to surge to $150 a barrel. Currently, it is trading around the $61 level per barrel.

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“There’s clearly a lot of uncertainty over how the events would unfold, but based on our assumptions, a US-Iran conflict could shave around 0.5-pts or more off global GDP growth,” they conclude.