Oil prices surged on Monday, May 9, 2023, after Hamas launched a surprise rocket attack on Israel, sparking fresh concerns about tensions in the Middle East. The conflict has raised concerns about supplies of crude from the region at a time when supply worries are already high owing to Saudi Arabia and Russia's output cuts.
The attack, which came in response to Israeli airstrikes on Gaza, has killed more than 40 people and injured hundreds more. It has also led to the closure of the main border crossing between Israel and Gaza, further disrupting the flow of goods and people.
The conflict has also raised concerns about the impact on inflation, with energy costs a key driver of spiking prices. This has given a fresh headache to central banks as they try to ease up on interest rate hikes to avoid recessions.
The price of Brent crude oil, the global benchmark, rose by more than 5% to $111 a barrel on Monday. The price of West Texas Intermediate (WTI) crude oil, the US benchmark, also rose by more than 5% to $107 a barrel.
The conflict in the Middle East is the latest in a series of factors that have contributed to the rise in oil prices in recent months. Other factors include the ongoing war in Ukraine, the sanctions on Russia, and the recovery in global demand for oil.
The rise in oil prices is likely to have a knock-on effect on other industries, such as airlines, shipping, and manufacturing. It is also likely to lead to higher inflation, which could erode consumer spending and economic growth.
Investors Seek Safety in Dollar and Yen
Investors also flocked to the safety of the US dollar and the Japanese yen on Monday. The dollar rose against the pound, the euro, and the Australian and New Zealand dollars. The yen also strengthened against the greenback, though it still remains locked around 11-month lows.
Gold, another key haven asset, gained around 1% on Monday. Equity markets were mixed, with Shanghai dropping on its first day back after a week-long holiday as investors continue to fret over the stuttering Chinese economy. There were also losses in Mumbai, Singapore, Manila, Bangkok, and Wellington, though Hong Kong rose in shortened trade, having been closed in the morning owing to a typhoon. Sydney and Jakarta eked out gains. Tokyo was closed for a holiday.
London edged up while Paris and Frankfurt were lower. The tepid performance came despite a rally on Wall Street, where traders welcomed data showing a forecast-busting jump in new jobs but wage growth slowing.
The "Goldilocks" figures — neither too strong nor too weak — lifted optimism the world's top economy can avoid a recession even as the Federal Reserve keeps rates elevated. Still, there are worries the bank will hike one more time before the end of the year, with officials determined to bring inflation to heel and keep it at their 2% target.
The conflict in the Middle East is a major geopolitical risk that could have a significant impact on the global economy. It is important to monitor the situation closely and to be prepared for the possibility of further volatility in the markets.
