Will Donald Trump’s Taco (Trump always chickens out) come to the rescue again, or has the US lit a war that won’t be easily extinguished? This is now a key question hanging over the Middle East and the global economy.
Trump’s war aims are a muddle, but he can almost be guaranteed to Taco at some point in the face of a persistent energy price hike while declaring victory. But that doesn’t mean Iran and Israel, both fighting existential wars, and the Gulf states, once seen as beacons of stability, will automatically revert to where they were pre-February 28th.
Do we expect tanker traffic to sail untrammelled through the Strait of Hormuz next month? Even outside of Iraq, US military adventures in the Middle East have a high failure rate.
Bank of Ireland chief economist Conall Mac Coille notes that – in terms of outcome – commodity and bond markets take somewhat differing views.
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“The overarching question now facing financial markets is whether traffic through the Strait of Hormuz, representing 20 per cent of global oil supply, can resume in the near future,” he says.
“Commodity markets have taken a relatively benign view, futures curves indicating Brent oil prices will fall from $100 per barrel (pb) this morning, to $75pb by early next year,” Mac Coille says.
“Bond markets have been more cautious, building in expectations of an ECB [European Central Bank] rate hike by July and persistently higher inflation over the medium-term,” he adds.
It is, of course, the case that both market signals could be correct: that a resolution of some sort will prevail, delivering lower oil prices, albeit with a lingering negative impact on inflation.
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Several leading economists have noted that the world is better able to cope with energy price shocks for two reasons: our economies have become less reliant on oil, and central banks have become better at dealing with inflation.
This is, of course, all theory and hypothesis for households and motorists facing another aggravating price squeeze.
And this time we’re starting from a higher inflationary base.
Inflation in the Republic was clocked 2.7 per cent last month, before the outbreak of hostilities. That’s considerably higher than when the Ukrainian war price surge hit in 2022.
