Capital Economics weighs in on the economic impact of Israel’s strikes on Iran

Investing.com - Israeli airstrikes on Iran earlier on Friday should have limited impact on global inflation and growth, according to analysts at Capital Economics.

In a note to clients, the analysts led James Swanston said that the violence could affect the world economy through higher oil prices. Should Israel choose to attack Iran’s oil production and export facilities, they estimated that Brent crude could jump to around $80 to $100 per barrel, which would add roughly 0.5 to 1 percentage points to developed market inflation by the end of the year.

Any rise in energy inflation would be another reason for central banks to proceed cautiously with cutting interest rates, and for the Federal Reserve to maintain its current wait-and-see attitude to future rate reductions, the analysts said.

However, they flagged that, even after a spike in crude following the strikes, oil prices are "considerably lower than they were a year ago."

Israel launched what it called a "preemptive" large‑scale airstrike on Iran early Friday, hitting “dozens” of military and nuclear targets, while a state of emergency was declared across Israel amid warnings of an imminent missile and drone counter‑strike from Tehran.

Iran’s state media also confirmed reports saying that Israel has killed Iran’s Revolutionary Guards Commander Hossein Salami.

Iran pledged a “harsh” retaliation against both Israel and the United States, while analysts have flagged worries that Tehran’s response could heighten security risks in the Strait of Hormuz, a critical artery for global shipping.

Elsewhere, U.S. Secretary of State Marco Rubio said that Israel carried out its military action against Iran independently, citing self-defense as the driving motive behind the strikes.

The White House had warned it would consider military measures should nuclear negotiations fail, with a key response deadline ending Thursday.