Recent spikes in commodity prices are tipping the balance towards a potentially grim economic outlook for the year, akin to the challenging times seen in the 1970s.
Ed Yardeni, the president and CEO of Yardeni Research, notes that the chances of witnessing a repeat of the 1970s are increasing, with risks of oil prices hitting $100 per barrel and gold soaring 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 warned that the odds of a 1970s-like scenario could increase further if the price of oil continues to rise.
The West Texas Intermediate (WTI) light crude, as tracked by the United States Oil Fund (NYSE:USO) has already rallied 24% year-to-date. Gold prices, as monitored through the SPDR Gold Trust (NYSE:GLD) have risen by 13% year-to-date, and by 27% since October’s 2023 lows, breaking new record highs.
Chart: Oil Prices, Gold On A Launchpad?
The Impact Of Geopolitics On Oil Prices
Yardeni stated that “a direct confrontation between Israel and Iran would rapidly boost the price of a barrel of Brent crude oil over $100.”
An intriguing angle raised by Yardeni has to do with the interplay between oil prices and U.S. presidential elections.
Yardeni, citing geopolitical expert Stephen Soukup, suggests Saudi Arabia might try influencing the U.S. election by raising oil prices. He states, “the basic thesis is that the Saudis might like to see President Biden lose to Donald Trump. So they might do whatever they can to boost the price of oil before the November election.”
Liz Peek, a former Wall Street oil-field analyst and current political-economic commentator, also speculated in her column for The Hill that the Saudi government might be trying to impact President Joe Biden‘s reelection campaign by keeping oil prices elevated.
For the Russians, high oil prices are essential for survival, Peek noted. Conversely, the Saudis view soaring oil costs as crucial for realizing the ambitious economic vision of Crown Prince Mohammed bin Salman (MbS) and as a means for “exacting revenge against Biden.”
With the U.S. election looming, the manipulation of oil prices could have a dual impact on Biden’s administration by exacerbating inflation and complicating foreign policy in Russia and Eastern Europe. A recent poll indicated that 22% of voters ranked inflation as their top issue, suggesting that rising fuel costs will likely remain a prominent concern.
