Is the Countdown to $150 Oil On as the Iran War Drags?

With a brutal semiconductor sell-off weighing heavily on the tech sector and the broader stock markets on Friday, as investors ponder the latest hotter-than-expected jobs print, perhaps a major risk is being overlooked: the situation in Iran and its impact on oil prices.

Undoubtedly, the stock market has already seemingly paid its dues, with the S&P 500 pretty much sinking into a correction earlier in the year as the war unfolded.

And while it did not take much for the S&P 500 to shrug things off and move on despite oil prices staying alarmingly high (it’s at around $90 per barrel today), I certainly wouldn’t dismiss the risk, especially if hopes of a peace deal begin to diminish along with the emergency reserve stockpile.

The case for worrying about the Iran war again?

Indeed, it’s good to be hopeful that peace talks will get somewhere and the Strait of Hormuz will be back open for business in short order. But the longer things drag on, the gloomier things could get, as reserves begin to show signs of exhaustion.

Emergency reserves are great to have for relatively brief conflicts or shocks. But if geopolitical chaos stays this way for the long haul, there’s really no telling what the price at the pump will be if Hormuz stays blocked with no end in sight.

Reportedly, emergency oil reserves are approaching a depth not seen in close to four decades. And, as I’ve noted in a prior piece, some big industry names (think ExxonMobil‘s (NYSE:XOM | XOM Price Prediction) Neil Chapman) are starting to sound just a bit more nervous about what could be around the horizon.

The countdown to lower reserves and higher oil prices is getting louder

Whether $150-160 oil is on the table in a few weeks remains the big question. Either way, I certainly would prepare for a scenario that sees oil prices start to inch higher again, especially if the path out of the Iran war becomes a bit less clear.

While I wouldn’t go as far as to view the whole countdown as a ticking time bomb, I do think that there’s a greater sense of urgency to strike a deal to remove the dual blockade, one that lasts, and one that allows for smooth sailing through.

Maybe an insurance guarantee or something of the sort could help get flows through such that another oil shock doesn’t start to upset stock markets once again.

For now, it’s unclear if the worst is in the rearview mirror for the oil spike. As a prudent investor, being prepared for any situation, I think, remains the best move. It’s good to be hopeful for a deal to be reached before reserves fall to multi-decade lows and things start to run dry.

But, at the same time, being prepared for the worst can be wise, not only for a good night’s sleep, but perhaps less pain if a more catastrophic scenario were to hit, if some grand bargain cannot be struck in time.

Any way you look at it, both sides are under pressure, and that pressure might start to become too considerable once mutually assured economic pain starts to really be felt.

The bottom line

Though the pundit calls for $160 oil or so might serve as a wakeup call, I certainly wouldn’t hit the panic button quite yet. At the end of the day, it’s hard to time commodity prices.

There are just too many variables to consider. If hopes turn into an actual deal, perhaps the peak in oil may already be in. And, of course, let’s not forget about the market’s remarkable ability to shrug off black swan events. There have been so many in the past six years. And the market has gotten back up to its feet every time. In that regard, staying the course seems prudent.