- Middle East tensions have escalated to include the US’s regional partners.
- Trump recently announced a major oil deal with Venezuela
- US private employment recorded the slowest growth since January.
Oil prices soared to levels last seen in July as tensions in the Middle East escalated. After pausing for almost a month, the US and Iran were back to missile and drone attacks that dashed hopes for a near-term peace deal. Meanwhile, market participants are keeping an eye on US economic data for clues on future Fed policy moves.
Tensions between the US and Iran reignited after the former attacked an Iranian island in the Strait of Hormuz. The attack left soldiers dead and wounded, causing an immediate retaliation from Iran. Tehran targeted US bases in Jordan, worsening the conflict.
For over a month, there was relative peace in the Middle East with no bombs or attacks. Rather, the US had decided to use sanctions to punish Iran’s economy. Still, tensions simmered as Iran went on to sign a deal with Oman to manage the Strait of Hormuz. Meanwhile, talks with the US had collapsed.
Experts also believe that Trump got tired of waiting for sanctions to have the intended effect. The new wave of fighting has escalated to include the US’s regional partners. The new conflict has dimmed the likelihood of a near-term peace deal. As a result, supply disruptions will continue sending prices higher.
“Hopes of a near-term deal to open the strait have faded as the conflict appears back on an escalatory trajectory in the wake of recent attacks,” Saul Kavonic, head of energy research at MST Financial, told Al Jazeera.
“The oil market is increasingly realising we may be in for a protracted ‘no war, no peace’ situation, with only partial volumes flowing through the strait that could last well into 2027,” Kavonic said.
Rising oil will stoke inflation worries, putting the Fed on high alert. However, Trump recently announced a major oil deal with Venezuela that will increase the US’s oil reserves and drop prices. Still, recent data has shown the economy has slowed down due to the war.
US private employment (Source: ADP Research)
On Wednesday, private employment missed forecasts and recorded the slowest growth since January. Traders are now awaiting Friday’s non-farm payrolls report for more clues on the state of the economy. Recent events have increased bets for a hike in September. A downbeat report could lower expectations for a hike.
