As the violence in the Middle East escalates, attention has focused, and rightly so, on the devastating impact the conflict is having on innocent civilians across the region.
But another major issue hovers just below the surface — oil. More specifically, how a possible rise in oil prices could affect economics and politics around the globe, especially here in the United States.
As President Joe Biden visited Israel and reinforced America’s commitment to its allies, a Reuters headline blared, “Oil spikes as Middle East strife heightens supply concerns.”
“Like Middle East wars of the past,” wrote Bloomberg News, “the conflict between Israel and Hamas that broke out this past week has the potential to disrupt the world economy — and even tip it into recession if more countries are drawn in.”
That old political cliche, an “October Surprise” — an unforeseen event that suddenly alters an election — usually emerges just weeks before the balloting. This year’s version, Hamas’ brutal assault and Israel’s justifiable retaliation, happened more than a year before the next presidential election, but it could still have a significant effect on the outcome.
That’s because American voters are already deeply unhappy with Biden’s stewardship of the economy. Lingering inflation, particularly for gas and groceries, continues to darken the public mood. If the Middle East turmoil causes a jump in fuel prices and strains family budgets even tighter, the president’s reelection prospects could take a serious hit.
The latest USA Today poll shows how perilous Biden’s position really is. Nearly seven in 10 Americans say the economy is getting worse, while only 22% believe that things are improving. One in three approve of Biden’s handling of the economy, while three out of five disapprove. Worst of all, 47% say they trust Donald Trump — the almost certain Republican nominee — to improve the economy compared to 36% who express confidence in the president.
Rise in oil prices a very real threat
Biden has made a major effort to sell his record as “Bidenomics.” He promotes bills that will spend billions on improving infrastructure, encourage domestic production of computer chips and enable the government to negotiate lower drug prices. Jobs are being created, he insists. The economy is booming.
Biden’s problem, however, is that the tangible benefits of these efforts have yet to be felt by most Americans. Meanwhile, 84% of them tell USA Today that their cost of living is rising. Sizeable majorities say they are eating out less, cutting back on clothes and groceries and putting off home improvements.
“We have all these government statistics pointing to a different story than what people are telling us and the polling,” said David Paleologos, director of the USA Today survey. “It’s vastly different, and it poses an immense challenge to Biden as president.”
Fifty years ago, war in the Middle East caused Arab oil producers to place an embargo against the U.S., and prices quadrupled. Lines of desperate drivers seeking gas snaked around blocks. If the conflict stays contained, experts don’t expect a repeat of 1973, primarily because the current combatants — Israel and the Hamas terrorists based in Gaza — do not produce oil themselves.
But the markets are jittery, and all bets are off if the violence spreads across the region. In an interview at the International Monetary Fund’s annual meetings in Morocco, reports Bloomberg News, Treasury Secretary Janet Yellen said she’s not seeing signs of “major economic ripple effects” at this stage, but added, “It’s critically important that the conflict not spread.”
The main fear focuses on Iran, which is a strong supporter of Hamas and a major oil producer, the fifth largest in the world. Perhaps more significantly, Iran borders the Strait of Hormuz, a waterway only 30 miles wide at one point, through which 20% to 30% of the world’s oil supplies move.
News reports are conflicting about Iran’s role so far, and it’s not clear whether Tehran knew about, or endorsed, Hamas’ raid on Israel. But the situation remains highly volatile, and if Iran were to enter the conflict and use oil as a weapon against the West, the impact could be highly dangerous.
“No one in the region, not even Iran, wants to see the Hamas-Israel conflict escalate into an all-out regional war,” Hasan Alhasan, a research fellow at the International Institute for Strategic Studies, told Bloomberg. But with emotions running so high, he warned, “The possibility of miscalculation is large.”
The situation is fluid, but the threat is real — to both global economic health and to Biden’s political fortunes. The October Surprise has already happened, a year early.
Steven Roberts teaches politics and journalism at George Washington University.
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