Financial expert: Oil prices and inflation: How does the Middle East conflict affect our pockets?

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Tuesday, April 16, 2024, 10:28

The current escalation in the Middle East raises many questions. What is the situation and what impact could the conflict have on global oil prices and inflation? Financial expert Sebastian Hell takes a close look at the current situation.

What is the current situation like?

The current escalation must be seen in relation to the Hamas terrorist attack on Israel on October 7, 2023, which caused severe traumatization of Israeli society. In addition to Hamas, Israel also suspects Iran of being the direct mastermind.

In addition to the offensive in the Gaza Strip, more and more attacks are being carried out in places where representatives of the Iranian security organs are suspected, such as Lebanon, Syria, Iraq and Yemen. Two weeks ago, Israel killed several top Iranian generals in an attack in Syria. In response, Iran fired drones and missiles directly at Israeli territory for the first time over the weekend. Although these could be largely eliminated through air defense, this does not change the fact that there will be greater military disinhibition.

About the expert Sebastián Hell

Sebastian Hell has been a successful entrepreneur in the German financial sector since 2005. In 2019 he founded the “Hell Investiert” project, which now has more than 100,000 followers on social media. The focus is on investing through tangible assets (stocks, real estate and precious metals) to achieve both profitability and capital protection. His free weekly report offers interesting tips and ideas.

What scenario is likely?

We are in a dangerous situation. In his view, neither side can leave the other side's escalation unanswered for fear of showing weakness. Furthermore, reactions so far show that neither side is interested in a major direct military conflict.

However, there is a risk of errors in judgment, leading to further conflict. The United States considers itself Israel's protective power. Therefore, an attack against Israel is always an indirect attack against the United States itself. Iran, in turn, has become one of Russia's most important arms suppliers to Ukraine and can sometimes count on its support. A regional conflict can quickly become a global conflagration.

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What impact does this conflict have on the price of oil?

So far we have seen relatively little movement in the price of oil and only a slight increase. This means that investors consider the risk of a major escalation low. However, Iran could exert influence here.

Almost a fifth of the world's oil is transported through the Strait of Hormuz, between Iran and the Arabian Peninsula. Iran could militarily close this highway with relative ease, which in turn would make intervention by Western states more likely.

Oil production facilities in countries such as Saudi Arabia, the United Arab Emirates or Kuwait could also be attacked. All this would cause a sharp increase in the price of oil, which people in Europe would also feel at the pump.

What did that mean for inflation?

An unforeseen escalation with a sharp increase in the price of oil would once again stimulate inflation in Europe and the United States. Central banks would then be forced to keep interest rates high or, if necessary, raise them further. This would place an additional burden on companies or individuals with negative consequences for the economy.

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This text comes from an expert from the FOCUS online Circle of EXPERTS. Our experts have a high level of specialist knowledge in their subject area and are not part of the editorial team. Learn more.

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