Oil Gushes Higher over Prospects for War with Iran
The US appeared to move to a war footing with Iran today, causing oil to surge with inflationary pressure.
The United States Department of State announced today it is preparing to evacuate its embassies in Iraq, Kuwait and Bahrain. The reason given is that Iran said it will attack those embassies or other US bases in the Middle East if the US attacks its nuclear facilities. The move to clear the bases, then, could indicate the US is preparing to attack Iran. It could also be a negotiating technique to up the pressure in negotiation by making it look like it is running out of patience and readying its attack stance. It could be both—turn up the pressure for the last push in negotiations and be ready to move instantly to war if they fail in order to capture a small breath of surprise.
President Trump also stated that he sees far less reason to have any hope for the negotiations than he did two months ago because he is starting to think Iran is just stalling. Iran rejected the latest US nuclear plan, and the counterproposal Iran says it will put forward in another few days sounds like a nonstarter because it requires removal of sanctions plus the ability to continue enriching uranium, something the president has already ruled out as non-negotiable. It might be that, rather than answer their proposal with a “no,” he would answer it with bombs, viewing this as Iran’s last stall attempt, so nothing left to talk about.
Currently, the US government is offering US personnel evacuation via commercial airlines, but it says it has the military standing by to offer evac assistance if needed. That sounds like readiness for rapid action: “So long as we are still in talks, we’ll keep using commercial airlines; but have your bags packed and ready to go because the moment we are certain the talks have failed, the military will evacuate you, and the bombs will already be on their way to Iran as you load into the planes.”
In the lull, talks have stalled with the US and Iran in disagreement over whether Iran will present its counter-proposal on June 12th (US choice) or 15th (Iran’s). It would appear the enrichment issue is one where both sides are intractable and likely at a stalemate.
Oil up!
As a result of the evac announcement, oil prices gushed upward 5% today. Since unusually low oil prices have been the key component suppressing inflation, the start of a war with Iran would remove that final anchor.
Zero Hedge was happy to be able to report that inflation has dropped almost fully back to the Fed’s target in today’s report, proving the numbskulls who believed the Trump Tariffs would cause inflation are just fear mongers because this is when inflation should have begun showing through. Of course, they said the same thing with the last inflation report, too. That was when tariff inflation should have started showing if it was ever going to, according to ZH.
This particular numbskull, however, practically promised you that you would be unlikely to see inflation from the Trump Tariffs until “early summer” due to existing inventory needing to be exhausted on any particular item because inflation would not kick in until tariffed items actually hit the shelves. There would be, I said, a few odd things that might have been low in inventory that might show substantial tariff inflation before then (which we saw at Target).
I should also clarify that I mean actual summer, not the first day of June, and “early summer” doesn’t mean “on the very first day” either. I, of course, don’t know what individual stores have for inventory, so that was an approximation based on likely back-stock. If I meant to be that precise, I would have said it. Even then, I said, you would see the tariff inflation when shopping during those early summer weeks, but it would take the normal lag time for the reports to come out for that period. If they’re monthly reports, I said you might not see inflation officially reported until August if the inflation doesn’t start arriving until the first week of July.
So, ZH is running way ahead of itself with glee, eager to prove itself right in order to underscore its position with its mainstay audience of Trump voters. I will stay with a goal of accuracy and a method of clear logic about how tariffs work, not political correctness with any particular audience over another for the sake of popularity. Then, if I am wrong, I will plainly say so and take whatever price comes with being wrong in terms of subscribers.
If war with Iran does begin, you will likely see significant additional price pressure from oil, which impacts everything over time. I imagine when that happens, ZH will try to blame all the inflation on the rise in the price of oil so it can still claim it was right about tariffs not causing inflation (well, unless they are imposed by Biden because they know how to pander to their audience).