Oil prices: White House preparing for oil at $US200 a barrel, sources say, amid Middle East stalemate

Trump administration officials are examining what a potential spike in oil prices as high as $US200 a barrel would mean for the economy, sources say, a sign senior officials are studying the possible fallout from extreme scenarios for the Iran war. Modelling of how damaging a bigger jump in oil prices could be to growth prospects is part of regular assessment done during times of strain and is not a prediction, according to the people. The effort is aimed at making sure the administration is prepared for all contingencies, including a prolonged conflict, they said. Even before the war began, Treasury Secretary Scott Bessent expressed concern that the conflict would boost oil prices and damage economic growth, the people said. Senior Treasury officials have communicated worries to the White House about swings in oil and gasoline prices for several weeks, some of the people said. White House spokesman Kush Desai called that account “false”, saying: “While the administration is always evaluating various pricing scenarios and economic impacts, officials are not examining the possibility of oil reaching $US200 per barrel and Secretary Bessent has not been ’worried’ about the short term disruptions from Operation Epic Fury.” Bessent, he said, has repeatedly “conveyed both his and the administration’s continued confidence in the long-term trajectory of the American economy and global energy markets”. Oil prices have jumped since the US and Israel attacked Iran on February 28, with West Texas Intermediate up about 30 per cent at $US91 a barrel. Brent crude is up almost 40 per cent over the same period, trading around $US102. The White House said Wednesday that diplomatic efforts to end the war are still under way despite Iran’s public rejection of President Donald Trump’s push for talks and threatened further military action if no agreement is reached. On Monday, Trump set a five-day deadline for Iran to negotiate a deal to end the war. The administration planned for the military campaign to last four to six weeks, the White House has said. Energy Secretary Chris Wright said on March 12 that a spike to $US200 a barrel is “unlikely”. Crude at $US200 would be an enormous shock to the world economy. In inflation-adjusted terms, the price has hit that level only once in the last half-century — in 2008 just before the global financial crisis. Even at lower levels, Bloomberg Economics forecasts that oil at $US170 per barrel for a few months would push inflation higher for the US and Europe and cut economic growth. Trump has said he’s not concerned about rising energy costs, even suggesting they’re beneficial to the US, and predicted that oil prices will drop sharply once the war ends. But the near-shutdown of shipments through the Strait of Hormuz, which normally carries as much as a fifth of global oil and gas exports, has already hit economies around the world. European Central Bank chief Christine Lagarde said last week that the hostilities have stoked inflationary risks. Peers in Frankfurt, London and Japan are priming for interest rate hikes as soon as next month. In the US, the most visible impact has been a 30 per cent increase in retail gasoline prices, wiping away declines over the last year that Trump had touted as a key economic achievement. The outlook for US monetary policy is also increasingly muddled as the Federal Reserve watches for the impact of higher oil prices on inflation. Last week, Fed chair Jerome Powell said that it was too soon to gauge the effects of a surge in oil prices on the US economy. Bloomberg