The latest conflict in the Middle East has added more complications to the already challenging global energy market. This is a problem not just for the world but particularly for the United States and President Joe Biden.
Bad Timing for Biden
With Biden up for reelection next year and concerns about inflation on the rise, the timing couldn’t be any worse.
Israel-Saudi Relations and U.S. Sanctions
Over the weekend, a surprise attack by Hamas in Israel led to growing pressure on the U.S. to enforce tighter sanctions on Iran, which is a major supporter of Hamas.
Risk of Soaring Oil Prices
This comes at a delicate time when there were hopes to improve relations between Israel and Saudi Arabia. If tensions escalate, the already high oil prices could shoot up even more.
Market Reactions to Conflict
Shortly after the markets reopened on Sunday night, oil prices jumped 5% to nearly $89 a barrel.
Affect on Oil Supply
They later settled at just below $88 on Monday morning. While the conflict itself hasn’t disrupted oil supplies yet, the worry is that it could widen to include other key players like Iran, thereby affecting the oil market.
Iran is a big part of this puzzle. Last year, Iran was the world’s eighth-largest oil producer despite being under sanctions.
U.S. Lawmakers Want Action
Iran seems to be dodging these sanctions by transferring oil to China in a sort of workaround.
Now, lawmakers in the U.S. are saying that Biden needs to crack down on these exports, especially as Iran has openly supported Hamas’ attacks on Israel.
Bipartisan Pressure on Biden
This situation is especially complex for Biden because his administration has been trying to ease tensions with Iran.
The $100 Barrel Dilemma
But now, both Democrats and Republicans are pushing him to get tougher.
If the U.S. does clamp down on Iran’s oil exports, we might see oil prices surpass the $100 a barrel mark, adding more financial strain on ordinary people.
Republicans are criticizing Biden for being too soft on Iran. They point to a recent decision where the U.S. allowed Iran to access about $6 billion of its frozen assets, supposedly for humanitarian use.
Financial Support to Terrorism?
Critics argue this money could indirectly support terrorist activities, although the administration denies this.
Saudi Arabia’s Delicate Position
In terms of global politics, the new conflict also has implications for Saudi Arabia, one of the world’s largest oil producers.
There had been some signals that Saudi Arabia was willing to recognize Israel in exchange for U.S. support.
But the latest violence puts any such agreements in jeopardy, given that Saudi Arabia’s response to the Hamas attacks was muted at best.
Oil Supply Decisions
Saudi Arabia recently decided to cut back on its oil supplies, pulling 1 million barrels per day off the market.
Bad News for Oil Prices
This decision is in line with other cuts made by the OPEC+ group, which includes Russia. This is not good news for those hoping for stable or lower oil prices.
Secretary of State Antony Blinken has indicated that Iran, Hamas, and Hezbollah could be trying to upset any attempts to improve relations between Saudi Arabia and Israel.
Normalization vs Resolution
While he did say that normalization between these countries cannot replace a resolution between Israelis and Palestinians, it’s clear that the situation is complicated.
Challenges for Biden’s Administration
There is little doubt recent events in the Middle East are adding to the energy and foreign policy challenges faced by the Biden administration.
Biden’s Plate Is Full
With escalating conflicts potentially driving oil prices higher, and complicating relationships with key countries, the U.S. finds itself in a tight spot both economically and diplomatically.
This adds yet another layer of complexity to Biden’s already full plate as he looks toward reelection.
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Featured Image Credit: Shutterstock / Trevor Bexon. The people shown in the images are for illustrative purposes only, not the actual people featured in the story.