The Brent Crude oil price will surge further, impacting the global economy and investors, if US President Joe Biden fails to cool rising tensions in the Middle East during his visit to the region.
An Israeli air raid struck a Gaza City hospital on Wednesday morning, killing at least 500 people, according to health authorities, just hours before United States President Joe Biden was scheduled to land in Israel – Washington’s closest ally in the Middle East – for a high-stakes visit with regional leaders.
Jordan, which was also meant to host President Biden for a summit with King Abdullah II, Egyptian President Abdel Fattah el-Sisi and Palestinian Authority President Mahmoud Abbas, has cancelled the meetings. This does not bode well for the security situation in the region.
The Brent crude oil price jumped on the news this morning, up from $90 to $91.68 at the time of writing. Oil prices had been trending higher following Saudi Arabia and Russia’s decision to reduce production.
Gaza hospital explosion pushes Brent Crude oil prices higher
Brent Crude oil prices rallied 2% following the deadly explosion at the Gaza hospital as it boosts tensions across the Middle East just before the arrival of US President Joe Biden. Clearly, the US is a major influence in the Middle East due to its economic interests, military presence, national security concerns, strategic alliances, and diplomacy efforts. If the US President – who is, of course, one of the major powerbrokers – fails to cool rising tensions in the Middle East during his visit to the region, we expect oil prices to surge further.
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Rising hostilities and potential conflict are likely to disrupt oil production, transportation, and exports in the region. A prolonged crisis in the Middle East will disrupt oil supply chains. This could be due to attacks on oil infrastructure, shipping routes, or other bottlenecks that prevent the smooth flow of oil. Such disruptions will cause supply shortages, pushing up oil prices.
The global economic impact of rising Brent Crude oil prices is far-reaching
Rising Brent Crude oil prices lead to higher production costs for businesses, typically resulting in higher inflation. Increased prices for gasoline/petrol and energy-related products also squeeze consumers. Also, high oil prices weigh on economic growth because when the cost of energy rises, businesses often cut back on production, and consumers reduce their spending.
Developing economies are particularly vulnerable to oil price spikes. Many of these countries rely heavily on imported oil, and surging prices can strain their trade balances and currencies. Oil price fluctuations have a direct impact on global financial markets. A surge in oil prices contributes to stock market volatility, and this particularly hits industries sensitive to energy costs.
What do investors need to do?
Investors must navigate these uncertain waters with caution, diversification, and a focus on long-term financial goals to mitigate the impacts of these geopolitical uncertainties. The Israel-Hamas war underscores the intricate web between geopolitical events, oil prices, the global economy, and investments. Unless President Joe Biden can effectively manage the rising tensions in the region, a further surge in oil prices is a real possibility, with potentially far-reaching implications.
