Recent spikes in commodity prices are signaling a potential shift towards a challenging economic landscape for the year, reminiscent of the turbulent times experienced in the 1970s.
Ed Yardeni, the president and CEO of Yardeni Research, highlights the growing likelihood of a repeat of the 1970s era, with the risks of oil prices reaching $100 per barrel and gold surging to $3,000 an ounce.
“We are still assigning subjective probabilities of 60% to the Roaring 2020s, 20% to a bout of irrational exuberance, and 20% to a second peak in inflation as occurred during the 1970s,” Yardeni outlined in a recent post.
However, he cautioned that the chances of a 1970s-like scenario could escalate further if the price of oil continues its upward trajectory.
The West Texas Intermediate (WTI) light crude, represented by the United States Oil Fund, has already surged by 24% year-to-date. Similarly, gold prices, tracked through the SPDR Gold Trust, have risen by 13% year-to-date and by 27% since October 2023, reaching record highs.
Geopolitical Influences on Commodity Prices
Yardeni emphasized that “a direct confrontation between Israel and Iran would rapidly escalate the price of Brent crude oil above $100 per barrel.”
An intriguing perspective raised by Yardeni delves into the relationship between oil prices and U.S. presidential elections. He references geopolitical expert Stephen Soukup who suggests that Saudi Arabia might attempt to impact the U.S. election by driving up oil prices. Soukup’s theory suggests that the Saudis could prefer a win for Donald Trump over President Biden and may use oil prices as a lever to influence the outcome.
Moreover, Liz Peek, a former Wall Street oil-field analyst and current political-economic commentator, posited in her column for The Hill that the Saudi government could leverage high oil prices as a tactic to affect President Joe Biden‘s reelection campaign.
Peek highlighted the contrast in perspectives between Russia and Saudi Arabia in relation to oil prices. While high oil prices are crucial for Russia’s economic survival, the Saudis view soaring oil costs as instrumental in achieving Crown Prince Mohammed bin Salman‘s economic goals and as a means of retaliating against Biden.
As the U.S. election looms, the manipulation of oil prices could have dual consequences on Biden’s administration by exacerbating inflation and complicating foreign policy, particularly in the context of Russia and Eastern Europe. Given that 22% of voters identified inflation as their top concern in a recent poll, the impact of rising fuel costs is likely to remain a significant issue of public interest.
Read now: Goldman Sachs Predicts Rosy 2024 Economic Outlook, Yet A Challenging Q1 Earnings Season For S&P 500 Stocks
Photo: Shutterstock
Insight:
The dynamic relationship between geopolitical events, commodity prices, and their impact on global economies underscores the intricate interplay between politics and economics. The potential escalation in oil prices driven by geopolitical tensions not only affects individual countries but also has broader implications for the global economy. Additionally, the strategies employed by key players like Saudi Arabia and Russia to wield influence through oil prices further underscore the complexities of international relations and economic policies.
