Tags: Roubini | War | Iran | Economy

Roubini: War With Iran is Biggest Risk to Global Economy

Thursday, 03 May 2012 11:32 AM

Tensions between Iran and the West may be on the backburner for now but they'll heat up again, and the possibility of military conflicts remain very possible, says New York University economist Nouriel Roubini.

The West and Israel accuse Iran of developing a nuclear weapons program, a charge Iran denies.

The United States and Europe have slapped sanctions on Iran that have already affected the country's oil exports, while Iran has threatened to close the Strait of Hormuz, a narrow waterway linking oil-rich Persian Gulf countries with the rest of the world.

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Multilateral talks have opened to end the standoff, which have eased sanctions, but expect the lull to end.

"There’s still a risk that there will be a military confrontation between Israel, and the U.S., and Iran," Roubini tells the Milken Institute Global Conference, according to CNBC.

Talks will fail, and the threat of war will likely increase after November's elections and send oil skyrocketing.

Even if war doesn't break out, fears of such are going to push up oil up and threaten the global economy.

"If the war of words escalates, you get a fear premium," Roubini says.

"The wider Middle East is a total mess and so is a geopolitical risk for the entire world economy."

Calls to drill more at home are growing, but the United States will still be dependent on global oil for a long time.

"People who believe that in five years we’re going to be energy-independent are deluding themselves. It’s going to be a 10- to 20-year story," Roubini says.

Delegates from the U.S., U.K., China, France, and Russia and Germany are set to meet with Iranian officials to diffuse the standoff and on May 23 in Baghdad, Iraq, following a first round of talks in Istanbul in April.

Oil prices have eased since talks opened, and sluggish macroeconomic factors continue to push prices down as well, though market observers say they're keeping an eye on Iran at all times.

"Iran is still a factor," says said Ric Spooner, chief market analyst at CMC Markets, according to Reuters.

"There is risk premium built into forward pricing. At the end of the day, people can never really become comfortable about these things until they see concrete actions."

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