Why oil could be headed to $200 a barrel, according to a former IMF economist

• Oil prices have surged amid unprecedented supply disruptions from the war in Iran.
• Former IMF economist Olivier Blanchard said compounding risks suggest oil could hit $200 a barrel.
• Energy Secretary Chris Wright said this week he saw that scenario as unlikely.

Oil prices have climbed as the war in Iran rages on, but a former International Monetary Fund economist said prices could have further to rise.

Olivier Blanchard, an economist and former IMF official, outlined the factors influencing oil's volatile price moves.

"I find it hard not to have as a central scenario where oil prices will remain very high for a long time, higher than the market current prices," Blanchard wrote on Thursday.

The economist explained the two principal reasons behind this thinking: Fully protecting ships in the Strait of Hormuz is virtually impossible, and there's "no reason" for Iran to stop threatening ships in the Strait.

The second point reinforces the idea that the market can't rely on the TACO trade again, since the president can't simply decide on his own how the conflict ultimately ends.

TACO, which stands for Trump always chickens out, describes the idea that the president tends to pivot or back down from policies that upset markets, such as his Greenland threats and tariff talk.

There's no TACO fix for Wall Street as oil prices surge due to the war, Marko Kolanovic, the former quant chief at JPMorgan warned.

"There is no reason, whether or not Trump declares that war is over, to think that Iran will not continue for some time to threaten to destroy the ships that try," Blanchard noted.

Supply dynamics signal oil prices could go to $150-$200

JPMorgan analysts estimate a 16 million barrel per day shortfall from the ongoing shipping disruption in the Strait of Hormuz, a critical bottleneck point for global trade.

There are policy levers to address the oil price spike, like reserves, export controls, and lifting the Jones Act, but securing the flow of ships through the Strait remains the paramount hurdle to lowering oil prices.

The International Energy Agency, which announced it will release 400 million barrels of oil from its reserve, said the ongoing conflict marks "the largest supply disruption in the history of the global oil market."

Blanchard said the supply deficit, combined with the very low demand elasticity for oil, signals prices should be closer to $150 or $200 per barrel, or even higher, rather than current levels around $100.

Secretary of Energy Chris Wright, meanwhile, said it's "unlikely" that oil prices would hit $200, but didn't definitively rule it out.

The official told CNBC in a separate Thursday morning interview that it's "likely" that the US Navy will be able to escort ships through the Strait of Hormuz by the end of the month.

Earlier in the week, Wright posted on X that the US had successfully escorted an oil tanker through the Strait. The comment sent oil prices immediately lower, though they bounced back after he deleted the post and after the White House confirmed the US had not escorted any tankers.