Since the war involving Israel, the United States and Iran began on February 26, oil prices have shifted dramatically.

“You go to sleep on a Sunday evening, prices are around $90 per barrel,” said Greg Daco, chief economist at EY-Parthenon. “You wake up on Monday morning, it is $115. You go to bed on Monday evening it is back to $90 a barrel. In the morning, prices are back to $85.”

Discussing different scenarios at the Bermuda Risk Summit yesterday, Mr Daco said if the war is severe and prolonged, prices of more than a $100 a barrel could become the norm.

“Oil prices in that scenario go above $100 per barrel and stay there over the course of 2026,” Mr Daco said. “In this scenario, gas prices surge by 150 per cent and they remain 100 per cent higher than the baseline for the rest of the year.”

He said the US would see growth reduced by about 1 to 1.2 percentage points, while Europe would see growth reduced by close to two percentage points in this scenario.

Mr Daco is seeing a paradigm shift in the economy.

“Supply shocks are increasingly driving economic activity and strategic policy, a change from days gone by when demand shocks were the key drivers,” Mr Daco said during the second day of the event at the Hamilton Princess and Beach Club.

He said geopolitical conflicts typically lead to downward pressure on long-term yields as investors seek a haven in US treasuries, but that is not the case this time around.

“Investments in US dollars are not necessarily going to the traditional safe haven they once were,” Mr Daco said.

The economist suggested several reasons for this, including expectations of higher inflation for a more persistent period; questions around how the US Congress will offset potential inflationary pressures through a fiscal package; and diversification out of US treasuries and into a broader set of assets.

However, Mr Daco said a positive artificial intelligence shock to the economy is leading to stronger economic activity.

“The first place you see a technological revolution take hold is in capital investment,” he said. “Capital expenditure and operational expenditure are fundamental, interlinked pillars of technological revolutions, along with infrastructure.”

He said last year investment in AI drove a third of US gross domestic product growth.

“There is very strong momentum there,” he said. Over the next decade, AI could add anywhere from two to four years of extra growth, he added.

The economist said the Iranian war will impact crude and oil and gas in different ways.

“Crude is more of a flow issue,” Mr Daco said. “There is still production and refining activity but natural gas is hard to store. You cannot necessarily continue producing it without the ability to transport it almost instantaneously.”

Even if the war ended tomorrow and Iran stopped bombing ships going through the Strait of Hormuz, natural gas prices would stay higher because it would take time to re-establish supply.

He said that without immigration, the American population is predicted to fall into negative growth in the next four years with more people dying than being born.

The summit continues tomorrow.