President Trump on Monday began to confront the potential economic blowback from his military strikes on Iran, which threatened to send oil and gas prices soaring at a moment when U.S. consumers are already facing significant financial strains.
The mere prospect of rising energy costs appeared to spook even Mr. Trump, who took to social media to push for more domestic drilling while demanding that companies “KEEP OIL PRICES DOWN”; otherwise, they would be “PLAYING RIGHT INTO THE HANDS OF THE ENEMY.”
“I’M WATCHING!” the president added.
By midday Monday, global oil markets appeared relatively muted, two days after Mr. Trump dispatched U.S. bombers on a mission to disable three Iranian nuclear sites. Prices rose over the weekend before ultimately settling, as Washington — and the rest of the world — braced for the possibility that Tehran may still retaliate.
In one worst-case scenario, Iranian leaders could look to shutter or otherwise impede access to the Strait of Hormuz, the narrow waterway that serves as the critical entrance point to the Persian Gulf. The world ships substantial amounts of oil and liquefied natural gas through the passage, so any interruption to commerce could cause energy prices to surge globally.
A spike in energy costs could prove especially difficult for American consumers and businesses this summer, given that it could arrive at about the same time that Mr. Trump plans to revive his expansive, steep tariffs on nearly every U.S. trading partner. Many economists expect those levies to push up prices after years of high inflation.
In April, the president announced, then suspended, those sky-high duties, seeking to quell a global market meltdown over his disruptive and legally contested campaign to remake global trade. But Mr. Trump has not wavered in his plan to implement the tariffs on July 9, and many economists expect companies — which pay the duties when they source foreign products — to pass the added costs down to their customers.
Taken together, said James Knightley, the chief international economist at ING, the uncertainties around geopolitics and trade threaten to “squeeze households’ spending power” in the coming months.
He said that there was already “quite a lot of anxiety” about tariffs, and that the concern now was that there “could be another wave of pain for the consumer in the form of higher energy prices.”
“That would be a big negative,” Mr. Knightley said.
The White House did not respond to a request for comment.
A spike in oil prices would only add to the mounting political headaches facing Mr. Trump, who has promised to salve stubbornly high inflation dating back to the coronavirus pandemic. The president has long viewed energy costs as a barometer for the effectiveness of his economic agenda, and he has crowed repeatedly about declining gas prices in recent weeks as a sign that his policies are working.
For the moment, prices across the economy have remained relatively stable, according to the latest reading from the Consumer Price Index. But economists widely believe that inflation could pick up as soon as this summer, particularly once the president’s tariffs take full effect.
Disputing that evidence, Mr. Trump has instead agonized for the Federal Reserve to slash interest rates, arguing that inflation has eased and high borrowing costs are no longer necessary. But the Fed left rates unchanged last week, citing the persistent uncertainty about the trajectory of the U.S. economy and the effects of Mr. Trump’s policies.
Jerome H. Powell, the Fed chairman, told reporters on Wednesday that the central bank was “watching like everybody else is” to see how the conflict with Iran might affect prices. But he also acknowledged that the U.S. government was less dependent on foreign oil than it was in past Middle East conflicts that have roiled global energy markets.
“What’s tended to happen is, when there’s turmoil in the Middle East, you may see a spike in energy prices, but tends to come down,” Mr. Powell said.
On Monday, analysts at Goldman Sachs said that a disruption to the oil supply could cause a small but notable contraction in global economic growth while increasing inflation, depending on the duration of the conflict and the extent to which Iran opts to interfere with the Strait of Hormuz.
The strait is particularly important to China, which imports a significant amount of oil through the passageway, according to Secretary of State Marco Rubio, who urged Beijing over the weekend to take a stand against Iranian retaliation.
“It will have some impact on us,” he told CBS’s “Face the Nation.” “It will have a lot more impact on the rest of the world.”
Mr. Trump and his top aides later suggested that they were closely watching energy prices, and they appeared to signal that they could take executive action if necessary to keep them from rising.
On social media, Mr. Trump demanded that the Energy Department begin “NOW!!!” to increase domestic oil production. That prompted Energy Secretary Chris Wright to promise that the agency was “on it!”
Kevin Hassett, the director of the White House National Economic Council, told CNBC earlier Monday that other oil-producing countries had significant reserves at their disposal, giving them “a lot of room to adjust” if Iran retaliated and prices did surge.
Tony Romm is a reporter covering economic policy and the Trump administration for The Times, based in Washington.
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