Growing Concerns for the US Economy as Middle East Conflict Jeopardizes Oil Prices, Suez Canal, and Strait of Hormuz, Raising Inflation Risks.

Analysts could see the US economy in turmoil due to the war between Israel and Hamas. They warn that the dollar could be affected and oil prices could be affected quickly.

The conflict could lead to higher inflation in the United States, which would be a significant problem for President Joe Biden as he enters the election year.

On Tuesday, economists at Goldman Sachs reported that the consumer price index appeared to continue its downward trajectory, falling to 3.98 percent in September from 4.3 percent in August.

The news will be welcomed by the White House, but their work in reducing inflation could be undone by rapidly developing events in the Middle East.

The unrest could impact the Suez Canal – the fastest shipping route between Europe and Asia, which carries seven percent of all world trade and is responsible for the passage of $10 billion worth of goods every day.

A trader is seen working on the New York Stock Exchange floor. The war causes great uncertainty on the markets

The amphibious dock landing ship USS Carter Hall is seen transiting the Suez Canal – a vital route connecting Europe and Asia – in August

It could also impact the Strait of Hormuz, widely considered the world’s most strategically important passageway for international trade. Twenty percent of global oil supplies flow through the Strait, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.

“The conflict poses a risk of higher oil prices and risks to both inflation and growth prospects,” said Karim Basta, chief economist at Ill Capital Management. Fox Business.

Another analyst, Carl Tannenbaum, chief economist at Northern Trust, said the uncertainty caused by the conflict could cause swings in oil prices.

“Any source of economic uncertainty slows down decision-making, increases the risk premium, and especially given that region… there is concern about where oil will open up,” he said.

Tannenbaum added that markets will monitor “what the scenarios look like” and whether this outbreak of violence, after decades of instability in the Middle East, will play out differently.

“The question will be: Is this iteration something that will throw off the long-term equilibrium?”

Twenty percent of global oil supplies flow through the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman and the Arabian Sea

The Suez Canal is pictured in 1973, with Egyptian soldiers transporting supplies. The canal is of crucial strategic importance and now carries seven percent of all world trade

Agustin Carstens, chief executive of the Bank of International Settlements, warned that it was too early to say what impact the conflict would have on the economy.

Carstens told the National Association for Business Economics that it is “too early to say” what the economic implications of a conflict in the Middle East might be, although oil and stock markets may see immediate impacts.

Federal Reserve officials have been monitoring the recent rise in U.S. Treasury yields, looking for indications that investors may have pushed financial conditions beyond what is necessary to cool inflation and reduce the risk of an overly dramatic cooldown of the economy – potentially derailing the Fed’s desired “soft landing” for the economy. this inflation cycle.

U.S. Treasury bonds are generally considered a safe haven in times of economic uncertainty and crises, so the conflict could spur a flight of investors in search of relative safety.

Bond prices and interest rates are inversely correlated, so increased demand for government bonds would help lower interest rates.

While falling interest rates could serve as a warning sign of a rise in inflation by encouraging consumers and businesses to borrow and spend more, the context of a new regional war in the Middle East could cause markets in this case come to a different conclusion.