Biden fears that Israeli attack on Iran may lead to electoral consequences due to increase in oil prices International

From “We are debating with Israel the possible bombing of Iranian oil facilities” to “If I were you, I would think about other options for attacking oil wells”, in just 24 hours. The rhetoric of United States President Joe Biden between last Thursday and Friday was clear: With the Middle East on fire, he went from encouraging to discouraging an option that was heating up – and in what way. – Oil market. This increase, if sustained over a longer period of time, would threaten to weaken the electoral prospects of his vice president and Democratic nominee, Kamala Harris, and benefit his opponent, Republican Donald Trump.

So far, the year of war in the Middle East has had little impact on oil prices. There was barely any movement in the markets as the bombing of Gaza killed about 42,000 Palestinians and destroyed the Palestinian strip. A sharp contrast to what happened a year and a half ago, when the start of the Russian invasion of Ukraine sent energy prices to stratospheric levels. In the United States, that huge boom led to runaway inflation that took two years to get under control and has contributed to Biden’s popularity. But Gaza does not have oil.

Israel is considering retaliatory action after Iran was attacked with more than 180 missiles last week, yes. It is the world’s seventh-largest producer, with approximately four million barrels per day. Its weight is such that any change in its supply abroad—or even the mere threat of a disruption—will dent the world market. This will also impact suppliers to the United States, despite the fact that the country does not consume a single drop of Iranian crude oil.

The possibility that recent tensions on the Israeli-Lebanese border could turn into a war that would bring down Tehran and even the United States was already causing some nervousness in the markets: Iranian attacks against Israel before, brent It had jumped 4% in a matter of hours. In this breeding ground, Biden’s ambiguous remarks on Thursday, in which he appeared to approve of a possible attack by Israel against Iranian oil infrastructure, sparked hysteria. In the hours immediately following his sentencing, the price of West Texas Intermediate (the reference in the US) rose 5.5%.

The President had to retreat almost immediately. On Friday he took an unprecedented step: He made a surprise appearance for the first time in the White House press room to answer reporters’ questions. There he was more frank in his response. And much more conservative. “The Israelis have not determined what they are going to do about an attack. There is a debate going on. If I were you, I would think of other options to attack oil wells,” he declared.

With the election race tightening, hanging by a thread in a handful of swing states, the increase in fuel prices would have been a torpedo in the Democrats’ waterways. Both are running for Congress and Senate and, above all, for the presidency. In a country that is predominantly – except in a few large cities – driven by car, the price displayed on gas station signs has as much or greater influence on elections than any other purely political variable. Its variations are the great context by which the average American assesses whether the economy is on the right track.

Jim Burkhardt, vice president of analysis firm S&P Global Commodity Insights, recently summarized, “Lower gasoline prices are in the common interest, which Republicans and Democrats want.” “And the president, regardless of party, is generally held responsible.” On the other hand, a perception that has little to do with market reality: the retail cost per gallon (3.7 litres, the measurement used in the United States) depends largely on the price of crude oil in international markets. “Something that no one can control, not even the President of the United States.”

A study by John Krosnick, Laurel Harbridge, and Jeffrey Wooldridge of Stanford, Northwestern, and Michigan universities estimated a six-tenths of a percent loss for a presidential candidate for every ten-point increase in the price of crude oil. is estimated.

No impact on gas stations yet

Although substantial, the increase in crude oil price has not yet been transferred to the pumps. And in short, it doesn’t seem to be enough to make any impact during the campaign. at least for now. According to the latest update from the Energy Information Administration (EIA), the price of gasoline in the United States is just above three dollars a gallon today, while some states are below. This has been helped by the decline in demand that typically occurs in the fall months, after the summer holidays and before the Thanksgiving celebration – this year it will be on November 28 – which has put Americans back into traveler mode.

Fresh movements in prices will definitely reduce the options to retest that level. Light years away, yes, from the all-time high of June 2022, four months after the war in Ukraine began and when the king fuel of the American automobile fleet reached an average of nearly five dollars a gallon.

In October that year, just three weeks before the midterm legislative elections, Biden had already decided to release 15 million barrels of crude oil from the US strategic reserve. The times were different – ​​at the time, inflation was burning a hole in the average American’s pocket – but the background was the same: Gasoline weighs heavily on a candidate’s chances of victory.

risk

Israeli attack on Iranian oil facilities would send oil prices skyrocketing. In fact, this is what happened in the first hours after Biden gave free rein to Benjamin Netanyahu’s government. Not only because Iran is the world’s seventh-largest producer and third in terms of reserves, but because it would mean the departure of thousands of barrels of crude from the world market for the first time since the war began. Middle East, a year ago.

“An important consideration will be whether Saudi Arabia will increase production (thereby reducing price pressure) if Iranian supplies are disrupted. As a rule, a 5% increase in oil prices adds about 0.1 percentage points to base inflation in advanced economies,” James Reilly, senior markets economist at consulting firm Capital Economics, said last week.

there is more. There is a lurking fear in the background that the conflict will result in the closure of the Strait of Hormuz, controlled by Iran. This move, although also risky from Tehran’s perspective – it is important to release its own production, especially towards China – would take large chunks of Saudi, Emirati and Kuwaiti crude out of play. And this will cause a serious price crisis in the oil market. One scenario, although currently foreseeable, would see the price of gasoline skyrocket around the world. And that, in a purely American way, would seriously harm Harris’s chances of victory. Of course, Trump is benefiting.