Currency Shocks to Oil Prices

JAKARTA – The widespread escalation of geopolitical conflicts in the Middle East region is considered to have an impact on the process economic recovery the world including Indonesia. Even, a new war between Iran and Israel potential for reheating world oil prices to reach USD 100 per barrel.

Chief Economist at PT Bank Central Asia Tbk, David E. Sumual, said that before there was any escalation or tension in the Middle East, the market actually saw a fairly fundamental change in terms of the possible interest rate policy of the Fed (US central bank) in the future.

“Previously, the market predicted that the Fed interest rate would fall by the middle of this year, but it looks like this will shift from May to September, but in fact my estimate is that if, for example, geopolitics heat up in the Middle East, it could possibly shift again to next year,” explained David in the IDX Market Review. , Wednesday (17/4/2024).

David added that this was made worse by the latest condition. As we know, at the end of last week there was an Iranian attack on Israel and many currencies including oil prices increased slightly.

“Because previously the market had expectations, pricing it in the possibility that tensions would peak after the Israeli attack on the consulate in Damascus, it was already within expectations so the market moved first,” said David.

Then what is not yet in the market’s expectations is how Israel will react, what kind of attack it will be, whether a counterattack will be carried out against Iran and how large the scale will be. To be continued, how will Iran react? The worst scenario would be a blockade of the Strait of Hormuz, which traffics around 70% of global oil.

Even so, according to David, surprisingly the global economy in the first quarter was relatively good, the United States (US) growth was still in line with expectations, China even announced yesterday that it could grow 5.3% in the first quarter.

“This is beyond the market’s expectations, retail sales were also announced yesterday in America, exceeding expectations, so inflation is still strong in America, yes, 3.5% for 3 months in a row, American inflation is higher than market expectations, so that means it is still quite strong in the beginning of the year,” he explained.