Oil prices are on the rise again as Iran prepares an attack on Israel. This could all come down against US President Joe Biden and his reelection campaign.
Oil prices jumped on Thursday morning as tensions in the Middle East finally placed a toll on crude trade. Brent, the global benchmark for oil, heads for $91 per barrel, approaching the psychological $100 level.
The six-month-old war between Israel and Hamas did not immediately affect oil prices. When Hamas launched its brutal attack on October 7th, Brent crude was at its lowest level for the year.
Not even when the Yemeni Houthi rebels started firing on oil shipments in the Red Sea did oil prices start rising. The US’s record crude production and weak global demand (especially from China) were keeping Brent in check.
But Israel’s violent and vicious response to Hamas’ attack, reducing Gaza to rubble, only increased tensions across the region. Moreover, Israel began attacking objectives in Syria and Lebanon, testing a reaction from its biggest regional enemy: Iran.
At the start of the month, 16 Iranian citizens were killed in an Israeli airstrike on the Iranian embassy in Syria. Reports from the United States and the United Kingdom point to an imminent retaliation from Iran, likely targeting objectives inside Israel.
A direct conflict between Israel and Iran would almost certainly involve the United States and would be the most dangerous Middle East conflict in years.
A danger to the economy
A rise in oil prices conversely increases inflation across the globe. The US Consumer Price Index (CPI) rose 3.5% in March, more than expected, partly because of a jump in energy prices.
Analysts expect April energy prices to edge even higher, likely worsening inflation too.
The American Federal Reserve fought against high inflation for years, managing to bring it down from its 9% peak in June 2022. To do so, the Fed brought interest rates to 5.5%, a 20-year high.
Inflation decline was also one of President Joe Biden’s major talking points for his reelection in November 2024. The Democratic Party has been pressuring the Fed to start cutting rates in the summer, ending the cycle before the election month.
However, tensions in the Middle East and the subsequent rise in oil prices and inflation forced the Fed to delay rate cuts. At the beginning of the year, markets priced in the first cut in June. Now, some expect the pivot to take place after the summer, dangerously close to the elections.
Republican candidate Donald Trump blasted Biden’s handling of inflation. In turn, Biden reminded that he was handed an almost double-digit inflation level at the beginning of his term.
The 2024 US elections and the future of global geopolitics may come down to oil prices and Middle East tensions.
