“Al-Aqsa Flood” hits central banks’ plans to tame inflation
The jumps recorded in oil prices as a result of the ongoing war between the Palestinian resistance and the Israeli occupation have surprised central banks in the world, especially in the United States and Europe, as price increases return inflation to the rise again, striking hopes for lowering interest rates, which have reached the highest levels. levels in 22 years in America.
French Central Bank Governor François Villeroy de Gallo, who is also a member of the European Central Bank, said in an interview with France Info yesterday, Tuesday, that the European Central Bank is particularly concerned about developments in oil prices due to the situation in Israel.
The European Central Bank raised its inflation forecast for this year from 5.4% to 5.6%, and for next year from 3% to 3.2%. But it cut its inflation forecast for 2025 from 2.2% to 2.1%. The European Central Bank had previously said that it was targeting an inflation rate of about 2% by the end of 2025.
The European Central Bank increased the interest rate on deposits, for the tenth time in a row last September, by a quarter of a percentage point to 4%, the highest level ever, after an unprecedented series of interest hikes from minus 0.5% in June 2022. To the current record level, with the bank seeking to reduce inflation, which significantly exceeds the bank’s target.
Oil prices recorded their largest daily jump in 6 months last Monday, before stabilizing the next day. US West Texas Intermediate crude was trading near the level of $86 per barrel, yesterday, Tuesday, after jumping by $3.59 to $87.97 per barrel the previous day, while Brent crude, the international standard, was trading yesterday at about $87.97 per barrel, after jumping by $3.57. To $88.15 per barrel upon settlement, on Monday.
At dawn on Saturday, Hamas and other Palestinian factions in Gaza launched Operation “Al-Aqsa Flood,” in response to “the continuing attacks by Israeli forces and settlers against the Palestinian people, their property, and their sanctities, especially Al-Aqsa Mosque.” Israel announced the largest mobilization ever among its army by summoning more Of 300,000 reserve soldiers, it launched attacks at sea and in the air on Gaza.
Although Israel has a limited influence on global oil supply, the outbreak of a bloody confrontation threatens to implicate the United States and Iran. Iran has become a major exporter of crude this year, which has eased the crisis of supply shortages in the markets. However, the imposition of additional US sanctions on Tehran may lead to… Stop these exports.
Rebecca Babin, an energy analyst at CIBC Private Wealth, said: “Finally, oil has become vulnerable to over-response to geopolitical events.” Any retaliation against Tehran, amid reports claiming that it helped plan attacks by the Palestinian resistance, could jeopardize the passage of ships through the Strait of Hormuz, a vital passage that transports much of the world’s crude oil, and which the Iranian government previously threatened to close. Last Monday, Iran denied its involvement in the attacks.
The current conflict may increase uncertainty about the future of the global economy, which was already suffering during the pandemic and after the Ukraine war, and may raise pressure on US markets that are still adjusting to the possibility that the Federal Reserve (the US central bank) will maintain interest rates at high levels for a longer period than necessary. Many investors expected it.
Carl Tannenbaum, chief economist at the Northern Trust, said: “Any source of economic uncertainty delays the decision to cut bank interest rates and increases risk factors.” He added, “Markets will also follow how the scenarios develop,” and whether these clashes differ from previous ones in the Middle East.
For central banks, this war represents a challenge regarding the extent to which inflation rates are likely to increase, especially since the region is not only home to major oil producers, such as Saudi Arabia, but also extends to the main shipping lanes through the Suez Canal.
In the same regard, Karim Basta, chief economist at III Capital Management, said, according to Reuters: “The war poses a risk to rising oil prices, and poses risks to both inflation and growth expectations,” which leaves the US Federal Reserve in a state of emergency. Out of confusion.
2023-10-11 05:23:38
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