On reaching its 196th day, escalation in the U.S.-Iran conflict is raising the risk of oil prices surging above $120 a barrel, as attacks on shipping intensify, after the fight between Washington and Tehran erupted this month after a period of relative calm in August. Iran has tried to attack American warships several times while the U.S. military has destroyed at least eight Iranian tankers since Saturday in retaliation.
At the same time, Iran’s Houthi allies in Yemen struck several energy facilities and other targets in Saudi Arabia this week, injuring more than 70 civilians and raising concerns that the war was broadening.
On Friday, President Donald Trump addressed his mission to degrade Iran’s nuclear capability as he rejected having any regrets over military action taken against the regime on ’The Ingraham Angle.’
President Donald Trump defends his decision to strike Iran’s nuclear capabilities, saying he would make the same choice again despite questions about the impact on the midterm elections.
He added that if Iran had a nuclear weapon, the Islamic Republic would “wipe out” Israel and the Middle East, and start hitting U.S. cities.
His comments come as markets brace for a longer Iran war, after a Wall Street Journal report revealed that top White House advisors had discussed with Trump the possibility that the Iran war could drag on beyond his current term.
On Wednesday, President Donald Trump said energy prices elevated by the Iran war will not come down until after the midterm elections, which are nearly two months away.
“Right after the election, oil prices are going to be tumbling downward,” Trump told reporters at Joint Base Andrews before heading to Texas for the Republican Party’s midterm convention.
He was asked how he plans to explain to Americans why oil prices have soared to highs not seen since the early weeks of the war. Global benchmark on Wednesday traded above $101 per barrel for the first time since July, while surpassed $96 per barrel at session highs.
“I think it’s very easy to explain to America,” Trump said. “All you have to do is say, ‘Will you let Iran have a nuclear weapon?’ And the answer is no.”
Trump also insisted that the war against Iran, now in its seventh month with no clear resolution in sight, will end “immediately after the election.”
“They can’t hold out any longer,” said Trump, who has repeatedly claimed victory in the ongoing war, when asked to explain his prediction.
But he then suggested that Iran seeks to benefit from an election outcome unfavorable to Trump.
″They’re desperate to try and affect the election, so that we can get a nice weak group of people in there, and leave them alone and let them have their nuclear weapon,” the president said.
The comments amount to a rare acknowledgement from Trump that neither the war nor the higher prices it has generated are likely to end in the near future.
They also underscore how the protracted conflict continues to weigh down Trump and the GOP in an election cycle that has been dominated by concerns about inflation and affordability.
Undoubtedly, Trump has claimed dozens of times throughout the war that a peace deal with Tehran is nearly at hand, only for none to emerge. But he lately appears to have given up on the prospect of a diplomatic victory, in favor of defeating Iran by destroying its military and starving its economy.
But Iran has already bypassed the impact of the economic sanctions, imposed by the US ( https://www.investing.com/analysis/gold-iran-bypasses-us-sanctions-as-oil-enigma-deepens-selloff-risk-200687465 ), through a ’secret trade mechanism’ with China, which has allowed Iran to exchange its oil for credits for Chinese imports, including military gear.
This provided a financial lifeline for Tehran in recent years given crushing US sanctions on its economy and the crucial oil industry. The scheme was mutually beneficial: China, the world’s biggest crude importer, retained access to discounted Iranian oil while shielding businesses exporting to Iran from penalties. It comes after the US hit Iranian crude-oil tankers on Tuesday as it traded heavy strikes with Iran in the Persian Gulf.
These abrupt shifts in President Trump’s war strategy and objectives suggest a lack of clear direction, as he alternates between declaring imminent victory and issuing severe threats against Iran.
Sometimes, he dreams about changing the name of the Strait of Hormuz to the “Trump Strait” to reflect US control over the key shipping lane: “We’re winning it [the war]. We control the Hormuz Strait. We should call it the ’Trump Strait’. I should get something out of it.
Despite such changing stances by President Trump, nothing has changed on the ground; his “Switch on and off” tactics have raised stagflation fears beyond the control of global central banks, including the US Federal Reserve, which is struggling hard to come to terms with the disfigured economic scenario.
Moreover, the European Central Bank raised interest rates Thursday to cool inflation that is being fed by high oil prices from the Iran war. The decision was supported by a stronger-than-expected economy that suggests businesses can weather the higher borrowing costs.
High energy prices are one reason eurozone inflation came in at 3.3% in August, above the bank’s target of 2%. Oil prices have risen above $100 per barrel due to lower oil tanker traffic through the Strait of Hormuz, which is under threat of Iranian attack.
Decisions being made about borrowing costs are complicated by the fact that it’s impossible to say how long the shipping restrictions and high oil prices will last.
Inflation concerns are also weighing on the U.S. Federal Reserve, whose rate-setters next meet Sept. 15 and 16. Fed Chair Kevin Warsh has said the bank may have “more work to do” to contain U.S. inflation of 3.7%.
On Friday, Headline U.S. consumer price growth accelerated in August as anticipated, while an underlying gauge came in slightly hotter than expected, according to data on Friday, which is being closely watched for any clues into the Federal Reserve’s upcoming interest rate decision next week.
Overall consumer prices rose by 0.4% month-on-month in August, in line with expectations and faster than July’s pace of 0.1%. In the twelve months to August, the consumer price index stood at 3.4%, equalling economists’ estimates and the prior month.
Gasoline costs, in particular, jumped by 3.9% versus the prior month, accounting for over one third of the total increase in all consumer items, the Labor Department’s Bureau of Labor Statistics said. A metric tracking energy prices also ticked up by 2.1%.
Analysts had been bracing for the impact of a renewed jump in gasoline pump prices. According to U.S. Energy Information Administration data cited by Reuters, gas prices averaged $4.192 a gallon in August, up from $4.064 in July.
Fuelling the surge was an energy shock sparked by the Iran war. Now in its seventh month, the conflict has left the crucial Strait of Hormuz effectively shuttered to tanker traffic, cutting off a waterway through which roughly a fifth of the world’s oil and liquefied natural gas flowed before the start of the fighting.
Military advances by Iran-backed Houthis in Yemen have also cast doubt over shipping activity in the Bab el-Mandeb Strait, another key conduit linking the Red Sea with the Gulf of Aden. Brent crude futures, the global oil benchmark, climbed above $100 a barrel for the first time since July this week — although this uptick predates the August CPI report.
Stripping out volatile items like food and energy, so-called “core” CPI increased by 0.3% month-on-month, compared to forecasts that it would match July’s rate of 0.2%. Year-on-year, core CPI eased slightly to 2.4% as expected, versus 2.5% in the preceding month.
Lodging away from home, airfares, education and used vehicle costs all gained over the month, but were partly offset by decreases in medical care and car insurance prices. The Fed typically pays special attention to the core measure, as it is seen by some policymakers as a tracker of underlying price pressures.
Another key figure in the Fed’s spotlight measures prices of services excluding energy and housing. Dubbed “supercore” inflation, the metric rose 0.5% month-on-month and 3% from a year earlier.
Policymakers at the central bank have stressed that they will be focusing on corralling inflation when they meet next week, driving speculation that the Fed may opt to raise rates following the two-day gathering on Wednesday — despite intense pressure from U.S. President Donald Trump to slash borrowing costs.
Fed Chair Kevin Warsh has even suggested that the central bank will “have work to do” should price growth not display signs that it is sustainably easing down to 2%, the Fed’s inflation target. In the wake of the CPI data, markets were pricing in about an 86% chance of a quarter-point rate increase this month, CME FedWatch showed.
“A hotter than expected core reaffirms the odds of a Fed hike at the next FOMC meeting,” analysts at CIBC Economics said in a note, referencing the rate-setting Federal Open Market Committee.
On the other hand, Yemen’s Iranian-backed Houthi rebels captured a strategic island in the Bab el-Mandeb Strait at the entrance of the Red Sea, two officials told The Associated Press news agency Friday, in a swift advance that further threatens Saudi oil exports through one of the world’s key commercial lanes.
Initial reaction in financial markets to the data was relatively muted. Stock futures on Wall Street held on to earlier gains, while the rate-sensitive edged higher and the benchmark inched down. Yields tend to move inversely to prices.
Still, some analysts have highlighted that there remains an outside chance that the Fed could choose to leave interest rates steady, mirroring a similar move taken in July.
Fed Governor Christopher Waller has indicated that he was open to waiting “one more meeting” before lifting rates again, highlighting the need to “take a chance to see if disinflation continues.” New York Fed President John Williams has also argued that policy now seems to be in a “good place,” although he stressed that he was open to a hike if the data warranted it. Warsh, for his part, has largely been determined not to present a detailed roadmap for borrowing costs, offering vague outlines instead. At a recent speech, he said only that the central bank must be confident underlying inflation is moving to “our objective, clearly and at sufficient speed.”
Complicating matters for Warsh is the presence of the man who appointed him as Fed Chair earlier this year, President Donald Trump. The president has threatened to cut off a large portion of U.S. trade should the Fed raise rates.
While “it’s hard to see” how the Fed can justify leaving rates on hold, “there’s no guarantee that the Fed will hike next week,” said Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management.
“It is said that all Fed Chairs are tested within their first six months, and with bond yields rising, inflation showing no signs of cooling, and a President who is calling for rate cuts (and will be incensed at rate hikes), Chairman Warsh is stuck between a rock and a hard place.”
Technical Levels to Watch
On a monthly chart, after opening the month at $4,498.70, testing the month’s high at $4,558.50, and the month’s low at $4,329.20, are trading at $4,428, signalling weakness as trying to defend the immediate support at $4,402.59, while trading below the psychological support at $4,444.
Undoubtedly, a breakdown below the key support at the 9 EMA ($4,351) could push the futures to test the next support at the 20 EMA ($3,996), where a breakdown could be possible if the US Federal Reserve hikes interest rates in its meeting next week.
On a weekly chart, after opening this week at $4,466.50, tested the week’s high at $4,488.80, and the week’s low at $4,333.92, gold futures are trading at $4,426, trying to hold the 9 EMA ($4,409) and the 20 EMA ($4,409) supports, as both are at the same levels, and a breakdown below this could push the futures to test the next key support at $4,328.90.
On a daily chart, after opening the day at $4,355.62, tested the day’s high at $4,444.29, and the day’s low at $4,333.92, gold futures are trading at $4,418.81, signalling weakness, as a breakdown below the significant support at the 100 EMA ($4,368.97), could push the futures to test the next key support at the 50 EMA ($4,310.21).
Undoubtedly, a breakdown below this could push the futures to test the next key support at $4,124.81 in the upcoming week.
On a 1-Hr. chart, after facing significant resistance at $4,444 at 10:00, gold futures look ready to pierce the immediate key support at the 9 EMA ($4,399), as currently trading at $4,410, ensuring a breakdown could retest the day’s low at $4,333.92.
Undoubtedly, a weekly close below this could result in a gap-down opening next week, as fears of a Fed rate hike could result in the closing of net speculative positions this week before the close.
