Oil Prices Rise as Strait of Hormuz Deadlock Fuels Inflation, Rate Hike Fears
Crude prices have climbed by about 10 per cent over the past week, as the United States and Iran appear no closer to reaching an agreement over the strategic waterway, despite earlier optimistic statements from the White House.
Tensions escalated after US President Donald Trump said on Monday that he would seek compensation from Iran for the conflict as part of any peace negotiations. He cited attacks and deaths over several decades that he alleged were backed or carried out by Tehran.
Trump’s position came in response to Tehran’s demand for US reparations as a condition for resolving the crisis.
The latest development followed Trump’s comments a day earlier that he was “low-keying” his approach to the conflict, signalling a willingness to rely on economic pressure rather than launch additional military strikes.
The renewed exchange between Washington and Tehran has raised doubts over the prospects of a quick resolution. Both major crude benchmarks rose by about five per cent on Monday before gaining more than one per cent on Tuesday.
“In the absence of any positive headlines on negotiations to reopen the strait, pressure on oil prices has been upward,” BNZ strategist Jason Wong said.
Quintex Intel global strategist Stephen Innes said both sides were effectively using oil as an economic weapon without resorting to further military action, with Washington seeking to restrict Iran’s ability to export crude while Tehran applies pressure on the key route used by other oil producers.
The possibility of crude prices remaining elevated has also revived concerns about inflation and increased expectations of further interest rate increases in the United States.
A surprise decline of more than 20,000 jobs in the US economy last month had eased expectations of a Federal Reserve rate hike. However, renewed inflationary pressure from higher energy costs could complicate the central bank’s policy decisions.
Cleveland Federal Reserve President Beth Hammack said on Monday that a single 25-basis-point rate move would probably have only a limited impact on the economy, suggesting that multiple adjustments could be required depending on economic conditions.
Markets are now awaiting the release of US consumer price data on Wednesday, which could provide fresh clues about the Federal Reserve’s next interest rate decision.
