According to a report from a local research house, following the alleged assassination of Iranian Commander Qassem Soleimani by a US drone attack, security concerns in the Middle East have escalated significantly. Iran and its allies have vowed to retaliate and there is a high possibility of a series of attacks from both sides in the coming months.
Nonetheless, analysts think the likelihood of an all-out war between Iran and the US with its Middle Eastern allies is thin, because it will likely extend to a wide range of countries, and there may be limited popular support for it in the US.
Thus, oil prices have shot up six per cent to US$70/bbl since the event unfolded. It is likely that they may remain high in the coming months, given potential supply disruptions in the Strait of Hormuz (near the coast of Iran and a major route for oil shipments out of the Middle East).
Impact on economy
Higher oil prices, if extended for more than a quarter, is a risk to Pakistan’s ongoing economic recovery, it is assumed. As such, amid cement industry price competition for greater market share by the recently expanded companies, higher oil prices is a severe cost pressure (hiking both energy and transportation costs) and would negatively impact the industry.