Oil prices will rise further, impacting both the global economy and investors, should US President Biden not alleviate the rising Middle East tensions during his visit to the region.

Just yesterday morning, an Israeli air raid struck a Gaza City hospital. At least 500 people were killed, according to health authorities.

President Biden is now in Israel – Washington’s closest ally in the Middle East – for a high-stakes visit with regional leaders.

Supposed hosts Jordan cancelled the meetings between President Biden, King Abdullah II, Egyptian President Abdel Fattah el-Sisi, and Palestinian Authority President Mahmoud Abbas.

Following Wednesday morning’s fatal explosion at the Gaza hospital, oil prices rallied 2% as tensions rose throughout the Middle East.

The Impact of Biden’s Middle East Visit

Of course, and as I was quoted by Bloomberg, Business Insider, The Street, Financial Mirror, Fintech Zoom and ForeignAffairs.co.nz, amongst other media, the US is a major influence in the Middle East. This due to its economic interests, military presence, national security concerns, strategic alliances, and diplomacy efforts.

Yet if Biden doesn’t manage to ease the tensions in the Middle East during his visit, we expect oil prices to surge further.

Indeed, mounting hostilities and likely conflict will disrupt the region’s oil production, transportation, and exports.

Furthermore, a prolonged crisis within the Middle East will disrupt oil supply chains. Possibly due to attacks on oil infrastructure, shipping routes or other disruptions that impede the smooth flow of oil. This will result in supply shortages, driving up oil prices.

Ripple Effects of Soaring Oil Prices

Naturally, the global economic impact of rising oil prices is extensive.

Increasing oil prices lead to higher production costs for businesses, usually resulting in higher inflation. In addition, elevated prices for gasoline/petrol and energy-related products also squeeze consumers.

Moreover, high oil prices impact growth. When the cost of energy rises, businesses often reduce production levels and consumers cut back on their spending.

In turn, developing economies are especially vulnerable to oil price hikes. Many of them are heavily dependent on oil and soaring prices can impact their trade balances and currencies.

Navigating Risks Amidst Oil Price Volatility

Additionally, oil price changes have a direct effect on global financial markets. A spike in oil prices leads to stock market volatility, and this particularly hits industries which are sensitive to energy costs.

As I explained in a previous blog post, investors need to remain cautious. They must ensure their portfolio is sufficiently diversified and focus on their long-term objectives. Therefore easing the impact of these geopolitical uncertainties.

The Israel-Hamas war reinforces the complex web between geopolitical events, oil prices, the global economy, and investments.

So, unless President Biden can cool the rising tensions in the Middle East, there’s a very real chance of a further spike in oil prices, with potentially far-reaching repercussions.

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Read my previous blog post here