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Politico
an hour ago
- Business
- Politico
How the Israel-Iran conflict could hit the economy
Presented by As the U.S. weighs intervention in Israel's conflict with Iran, Wall Street has been skittish, eyeing the potential fallout for oil prices and inflation. To get a better sense of what's driving the oil market and what economic risks might lie ahead, MM caught up with Rory Johnston, an oil market analyst at research service Commodity Context who's been following all of this closely. A takeaway from that conversation: The price jump has been notably large for a market that has become desensitized to political risks after safely weathering multiple shocks over the last few years, including Covid and the Russia-Ukraine war. Now, 'even a numb cynical oil market sees Israel bombing Tehran and says, 'OK, maybe worry a bit here,'' he said. Conflict with Iran is the 'No. 1 risk scenario that people talk about, and now we're living in it,' he added. A worst-case scenario would be if Tehran is driven to close off the Strait of Hormuz, a channel through which about a fifth of the world's oil passes. Experts including Johnston say it's unlikely Iran would do that unless pushed to the brink — such a move would run the risk of hurting its own economic lifeline, as well as antagonizing its neighbors in the region — but the shockwaves would be significant. For now, what struck your host is that this conflict is helping prop up prices at a time when they'd really started to drop, and that could help boost U.S. oil production, which had previously been forecast to contract in 2026. But the exact trajectory of all this is highly unclear. 'This is usually the lead-up to summer driving season, so gasoline prices were set to rise anyway,' POLITICO's resident oil market expert Ben Lefebvre told MM. 'Because of the current Middle East situation, they'll rise further than they might have when oil was still around $60 a barrel. But when compared to what U.S. drivers experienced even last year, it won't be too far off recent norms … if there is such a thing as 'recent norms.'' 'The interesting thing is whether this spurs U.S. oil companies to drill more,' he added. 'They might just see this as a temporary boost and not something they want to get too far ahead of.' Rewind to before the current Israel-Iran conflict escalated. OPEC, the cartel of major oil-exporting countries, had been holding back production but then ramped up output earlier this year. That move was taken, in part, to get ahead of the effects of President Donald Trump's tariffs, which had raised fears that demand for oil would crater amid a global slowdown. That was leading to forecasts of oversupply later this year, Johnston said, reducing incentives for oil companies to produce. Now, Israel's attacks on Iran have likely led to fear-buying, as well as speculative trading, that has pushed up prices as much as 15 percent. Fighting so far has spared infrastructure that would significantly crimp the outflow of crude. 'While theoretically on its face, nothing that's happened so far has changed anything physical about supply and demand, part of the way … price formation has occurred is you have physical participants — a refinery, whatever — that's all of a sudden worried they're not going to be able to get cargos next month or the month after,' Johnston said. For prices to stay high or go higher, there likely would have to be some actual damage to key oil infrastructure, he said. But in the meantime, the scope for economic disruption is still significant. The largest price increases have been for diesel, a key input for shipping and therefore a potential risk to inflation in many sectors. 'It might not seem as harsh at the pump, but your shipping and your route delivery is going to feel the pinch of diesel far more,' Johnston said. More broadly, John Fagan, co-founder of Markets Policy Partners and the former markets head at the Treasury Department, said this oil price shock feeds the narrative that the U.S. is going to have slower growth and higher prices: stagflation. 'Demand is not collapsing, and oil prices are not unbelievably high, so you don't have that pop and drop kind of dynamic' when prices rise above where the market can support, he said. 'And if the dollar can't rally, that's supportive of [higher] oil prices.' HAPPY FRIDAY — Hope many of you got to have a restful day off yesterday. Send thoughts about the economic outlook to vguida@ and as always, send MM tips and pitches to Sam Sutton, who is back next week: ssutton@ Driving the day Deputy Treasury Secretary Michael Faulkender speaks at the Council on Foreign Relations at 12:30 p.m. Debt warnings fall on deaf ears — Republicans are largely ignoring a host of reports warning that their bill would worsen the nation's fiscal trajectory in a serious way, our Ben Guggenheim reports. The Congressional Budget Office estimates Tuesday led to an unusual finding. Usually tax cuts tend to cost less under so-called dynamic scores that include economic effects. Not so here: The $2.8 trillion figure released Tuesday outstripped the CBO's prior $2.4 trillion estimate that did not include economic analysis — mostly because the bill would increase interest rates. But the GOP is relying instead on estimates from the White House that Kyle Pomerleau of the American Enterprise Institute called 'outrageous' and 'way higher than everyone else's.' Your MM host chatted last week with Joe Lavorgna, who joined the Treasury Department this month as a counselor to Secretary Scott Bessent, and he had thoughts on CBO's projection that the economy would grow at an average rate of 1.8 percent over the next 10 years. 'Once the One Big Beautiful Bill passes, it's going to lock in the gains that we saw in the first Trump administration, when we were growing at nearly 3 percent,' he told your MM host. 'Then, you could make a case because of AI,' productivity growth will be much higher. 'The trailing 10-year growth rate of GDP is 2.5 percent. Why aren't we using that? .. 1.8 is unbelievably pathetically slow.' On the pods: Hear from CBO Director Phillip Swagel himself on Bloomberg's Big Take podcast. Sober news on entitlements — The longterm financial health of Social Security and Medicare worsened last year, our Michael Stratford reports. 'Annual reports released by the Treasury Department on Monday show that Social Security's reserve funds, if combined, would run out of money to fully pay beneficiaries in 2034 — a year sooner than projected last year,' Stratford writes. 'And the trust fund that pays Medicare's hospital bills would be depleted in 2033 — three years earlier than expected.' Trump calls for 'clean' Senate crypto bill to pass — Late Wednesday, Trump called on House Republicans to move 'LIGHTNING FAST' to send Senate-passed stablecoin legislation to his desk, dialing up pressure on GOP lawmakers in the lower chamber to adopt the measure without any changes, our Jasper Goodman reports. The Economy ICYMI: Fed holds rates steady — Federal Reserve officials announced Wednesday that they will hold interest rates steady, ignoring repeated calls from President Donald Trump to dramatically lower borrowing costs. In fact, projections from the central bank's policymakers suggest they're less confident they will be able to significantly decrease rates than they were in March. Vibe check: Here was Trump's response on Truth Social Thursday morning: ''Too Late' Jerome Powell is costing our Country Hundreds of Billions of Dollars. He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit. Europe has had 10 cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden's Short Term Debt. We have LOW inflation! TOO LATE's an American Disgrace!' Jobs report Carolyn Davis is now director of comms at Better Markets. She previously was director of external comms at Leadership for Educational Equity. Mike Spratt has joined the ICI as an associate general counsel. He previously was assistant director in the Division of Investment Management Disclosure Review office at the SEC. He also served as counsel to former SEC Commissioners Kara Stein and Elisse Walter.
Business Times
15 hours ago
- Business
- Business Times
Oil prices up nearly 3% as Israel-Iran conflict escalates, US response remains uncertain
[CALGARY] Oil prices jumped almost 3 per cent on Thursday as a week-old air war between Israel and Iran escalated and uncertainty about potential US involvement kept investors on edge. Brent crude futures settled up US$2.15, or 2.8 per cent, to US$78.85 a barrel, its highest close since Jan 22. US West Texas Intermediate crude for July was up US$2.06, or 2.7 per cent, to US$77.20 at 1330 EST (1730 GMT). Trading volumes were light on Thursday due to a US federal holiday. Israel bombed nuclear targets in Iran on Thursday, and Iran fired missiles and drones at Israel after hitting an Israeli hospital overnight. There was no sign of an exit strategy from either side, as Israeli Prime Minister Benjamin Netanyahu said Tehran's 'tyrants' would pay the 'full price' and Iran warned against a 'third party' joining the attacks. The White House said on Thursday that President Donald Trump will decide whether the US will get involved in the Israel-Iran conflict in the next two weeks. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up That prospect has crude prices grinding higher, said Rory Johnston, analyst and founder of the Commodity Context newsletter. 'Consensus (in the market) is increasingly forming that we will see US involvement in some way,' Johnston said. Iran is the third-largest producer among members of the Organization of the Petroleum Exporting Countries, extracting about 3.3 million barrels per day of crude oil. About 18 million to 21 million bpd of oil and oil products move through the Strait of Hormuz along Iran's southern coast, and there is widespread concern the fighting could disrupt trade flows. The risk of major energy disruption will rise if Iran feels existentially threatened, and US entry into the conflict could trigger direct attacks on tankers and energy infrastructure, said RBC Capital analyst Helima Croft. On Thursday, JP Morgan said an extreme scenario, in which the conflict widens to the broader region and includes a Strait of Hormuz closure, could result in oil prices surging to US$120 to US$130 per barrel. Goldman Sachs said on Wednesday that a geopolitical risk premium of about US$10 a barrel is justified, given lower Iranian supply and risk of wider disruption that could push Brent crude above US$90. Even if Middle East tensions were to cool off in the coming days, oil prices are probably not headed back to the low US$60 range they were trading at a month ago, said Phil Flynn, senior analyst at the Price Futures Group. 'I think this (conflict) knocks oil out of its complacency,' said Flynn. 'I would argue that the market has been underplaying geopolitical risk.' But DBRS Morningstar said in a note on Thursday that it expects any sudden oil price surge to be temporary. A higher oil price will exacerbate tariff-related headwinds to the global economy and oil demand, so as long as the conflict recedes, the war premium will deflate and prices will cycle lower, DBRS said. Russia's top oil official said on Thursday Opec+ oil producers should proceed with plans to increase output, noting rising summer demand. Russian Deputy Prime Minister Alexander Novak said at an economic forum in St. Petersburg that Opec+ should calmly execute its plans and not scare the market with forecasts. REUTERS
Edmonton Journal
4 days ago
- Business
- Edmonton Journal
Varcoe: Energy talks at G7 summit under shadow of Middle East conflict as oil prices 'to spike higher'
Article content Analysts anticipate prices will climb higher in the coming days. 'I do expect prices to spike higher again . . . High $70s, low $80s for Brent (crude) is back in play,' commodity economist Rory Johnston, founder of the Commodity Context newsletter, said Sunday. 'This is the latest in a series of previously unthinkable developments that have eroded energy security across the board.' Building energy security is one of the key themes Prime Minister Mark Carney, as G7 host, has set on the summit's agenda, although it's been a perennial issue discussed by the group over five decades of annual meetings.
CNA
26-05-2025
- Business
- CNA
Oil holds steady; market awaits clarity on OPEC+ next move
CALGARY :Oil prices held steady on Monday with news that eight OPEC+ countries, who had pledged extra voluntary oil output cuts, will now meet on May 31, a day earlier than previously planned. Brent crude futures settled down four cents at $64.74 a barrel, while U.S. West Texas Intermediate crude last traded at $61.53 a barrel, unchanged from the prior day's session. Trading volumes were light due to the U.S. Memorial Day holiday. Three OPEC+ sources told Reuters on Monday about the change of meeting date. The meeting will likely decide on July output, which sources have previously told Reuters will entail another 411,000 barrels per day of production increase. The meeting is separate from the online ministerial meeting of the Organization of the Petroleum Exporting Countries and its allies, led by Russia, set for May 28. Russian Prime Minister Alexander Novak said on Monday that OPEC+ has not yet discussed hiking output by another 411,000 barrels per day ahead of its meeting, RIA news agency reported. "At this stage, it feels like the market is exhausted with this," said Rory Johnston, a Toronto-based analyst and founder of the Commodity Context newsletter, adding investors and traders are still anticipating the arrival of additional OPEC barrels but are disinclined to react significantly until something material emerges. OPEC oil output edged lower in April despite a scheduled output hike taking effect, Johnston pointed out, which added to the overall market hesitancy. "It feels like (OPEC) really wants to have headlines every couple of days," Johnston said. "But the market reaction to them at this point is waiting for anything (tangible) to actually show up." Both Brent and WTI had traded higher earlier in Monday's session after U.S. President Donald Trump said he agreed to extend a deadline for trade talks with the European Union until July 9, marking another temporary trade policy reprieve. The extension eased concerns that U.S. tariffs on the EU could hit fuel demand. Global markets climbed on Monday and the euro rallied. "Trump's pivot, by postponing higher tariffs for the EU, and his comments on possible sanctions on Russia are moderately supporting crude prices today," UBS analyst Giovanni Staunovo said. Trump separately said in a social media post that Russian President Vladimir Putin had "gone absolutely CRAZY" by unleashing the largest aerial attack of the war on Ukraine and that he was weighing new sanctions on Moscow.
CBC
28-02-2025
- Business
- CBC
Pipelines seem more popular amid Trump's threats. But does it make sense to build new ones?
When the Trans Mountain pipeline expansion opened on May 1, 2024, carrying oil from Alberta to the B.C coast, there was no grand opening ceremony. The federal government of Prime Minister Justin Trudeau, which had bought the project and spent over $34 billion — making the pipeline one of the largest infrastructure projects ever built in Canada — said almost nothing about it. "This was a thing that the Liberal government did right for the oil sector … and they didn't celebrate it at all. There was no ribbon cutting ceremony," said Rory Johnston, founder of Commodity Context, an oil market research service. Even Alberta Premier Danielle Smith, a major Trudeau antagonist, thanked the federal Liberals for finishing the pipeline, saying that it would be a "game-changer" for Alberta's oil industry and hailing it as an example of federal-provincial cooperation. But the Liberals were heavily criticized for the pipeline from climate advocates, who saw it as the government betraying its emissions reduction goals and giving the oil and gas industry — Canada's largest emitter of planet-warming greenhouse gases — a massive boost. That all seemed like a distant memory at the Liberal Party's leadership debates this week. In both the French and English language debates, leadership frontrunner candidates expressed warmer sentiments towards pipelines. "A project like Energy East is possible. It's a fact it's possible to build a pipeline to Quebec, to the Maritimes from Alberta.… I think it's an opportunity for us that we should seize," said former central banker Mark Carney in the French debate on Monday. "I am very proud to be the minister that got access for our energy to the Pacific. That diversification is so valuable today. It gives us an alternative to the United States. We need that more than ever," said former finance minister Chrystia Freeland at the English debate on Tuesday. All this comes as Canada faces U.S. President Donald Trump's threats to make Canada the 51st state and to slap tariffs on Canadian exports — which could bring down Canada's export-dependent economy — have led to newfound interest in shoring up Canada's economic and energy independence, pipelines included. But even if the political climate becomes more favourable to new pipeline projects, they still face the ongoing transition away from fossil fuels to clean energy. That means building new pipelines might make sense for Canada's energy security and politicians looking for leverage as they face down Trump, but it may not be very appealing for private companies trying to make a profit. What do Canadians think of new pipelines? An online Angus Reid survey of 2,012 Canadians taken in late January suggests an uptick in pipeline support. Energy East, the west-to-east pipeline proposal that was cancelled in 2017, has seen its support increase from 58 to 65 per cent since 2019, the poll suggests. Support for the pipeline has reached 47 per cent even in Quebec, where there was a mass movement against the project when it was proposed over environmental concerns. A little over half of Canadians seem to also support Northern Gateway, a proposed pipeline that would bring Alberta oil to the B.C. coast but was cancelled by the Trudeau government in 2016. In B.C, the poll found 55 per cent of those surveyed support Northern Gateway, which was originally opposed by many Indigenous and environmental groups for potential spills along its route through the province, and in the waters off of Northern B.C. "People are kind of casting around right now for alternatives. You know, how do we decouple our economy from the U.S?" said Hayden Mertins-Kirkwood, senior researcher at the Canadian Centre for Policy Alternatives. He said this turn back toward pipelines shows a lack of political imagination, and Canada should use the moment to boost other industries — like clean electricity or manufacturing with a more certain future in a world turning away from fossil fuels. "There's this huge risk of stranded assets here that we're continuing to double down on, infrastructure that we aren't going to need in the next few decades," he said. "Instead of building new infrastructure that's going to last us for 100 years." Matto Mildenberg, a political science professor at the University of California Santa Barbara, who studies climate change policy and politics in North America, said that while the political tensions with the U.S. had opened up space to talk about pipelines, he still expected any future Liberal government to stay focused on the energy transition, something that's been the party's key priority for nearly a decade. "I don't view any of the messaging that we're hearing from the Freeland and Carney campaigns as indicating as a de-prioritization of climate as an issue," he said. What lessons have been learned from Trans Mountain? The Trans Mountain project and its eye-watering cost overruns loom over any future Canadian pipeline proposals. Texas-based Kinder Morgan first proposed expanding the pipeline in 2012. The pipeline carries oil from Alberta to ports and refineries on the West Coast, and the company wanted to more than double its capacity and bring in opportunities for Alberta oil companies to export to markets in Asia and elsewhere. But the project faced significant protests and legal challenges from environmental groups, First Nations along the route and the B.C. government itself. In 2018, Kinder Morgan suspended the project and said it may have to abandon it completely because of all the opposition. The Trudeau government then stepped in to finish it, buying the pipeline for $4.5 billion and spending billions more to build the expansion. "Even if it was grievously over budget, and even if the pipeline itself never actually breaks even as a standalone project, the benefit of the Crown being the one to build it is that the federal government can take a far broader economic picture for whether or not it's worthwhile," Johnston said. He said that means the government can take into account the long-term benefits for Alberta, for oil industry workers, and now for having a way to export oil without being completely reliant on the U.S — even if the pipeline itself doesn't succeed as a business based on how expensive it was to build. As part of the process to set tolls for companies using the pipeline, the federal energy regulator is going to review why the project ended up costing so much. "I think if we're serious about this kind of nation building project, we need to understand what went wrong with Trans Mountain," Johnston said, pointing out some of the cost was likely having to drill through mountains, or bad luck, like flooding. Other pipelines may not necessarily have such expensive obstacles, he said. WATCH | Life along the expanded Trans Mountain pipeline: Pipeline road trip: How Trans Mountain's expansion is changing lives 10 months ago Duration 25:58 After more than a decade of delays and division, oil is now flowing through Canada's expanded $34-billion Trans Mountain pipeline. Reporter Erin Collins and a CBC News team travelled the entire route to uncover how the pipeline is changing lives in the communities it runs through. What about the clean energy transition? Since 2021, the International Energy Agency, which advises industrialized countries on energy markets and projections, has been clear: to avoid the worst impacts of climate change, which are already more frequent and severe, the world needs to work toward net-zero emissions by 2050. That, the IEA says, means no new long-term oil and gas projects should be built. Last June, it forecast that global oil demand will peak by 2029 as power generation moves to renewable sources and electric cars become more popular. "If the world is successful in bringing down fossil demand quickly enough to reach net zero emissions by 2050, new projects would face major commercial risks," the agency warns, because the world would have moved on to renewable energy and there wouldn't be enough demand for fossil fuels. "I think that Canadians are going to have to grapple with the probably declining role of fossil fuels in the global economy as the energy transition proceeds. And that's going to mean that the Canadian economy can't be rooted in fossil fuel extraction for very much longer," Mildenberg said. "I think that a better approach to thinking about the disruption that the current American administration is creating is to think about other ways in which Canada can become energy independent in a way that also meets the needs of the climate."
