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When the US and Israel launched attacks against Iran this weekend, prompting a military response across the Middle East, concerns ranged from humanitarian costs to macroeconomic ones. Of the latter, analysts are cautiously watching for signs that Iran could disrupt global oil supplies, pushing prices higher as a result.
In the US, it can be a bad result. Voters, driven by rising prices during the pandemic and subsequently targeted by concerns about tariff hikes, are nervous about any further threats to come.
Jamie Dimon, CEO of JP Morgan, shared their concern. Like many of his Wall Street peers, he’s not sold on the idea that a conflict with Iran will increase the cost of living in the United States—that is, unless it drags on for the past month or so as President Trump has suggested.
Speaking at the firm’s annual global leveraged-finance conference, Dimon warned that inflation could prove to be “the skunk in the room.” The proverbial economic mephitidae is unlikely to be triggered by a conflict in the Middle East alone, said the Wall Street veteran, although the threat it poses increases as military action continues.
Dimon shared his thoughts with various outlets, but Bloomberg explained: “We look at the risk, the broad results, and there are negative results. One of them is inflation, I call it the skunk of the party. It’s been going down, but it seems to have leveled off at about 3%. If things go up—and it’s just one thing, you can look at medical prices, construction prices, insurance prices, wages. increase a little, a little bit of inflation.”
Military action in the Middle East may prove inflationary due to the disruption of trade routes. Iran is located along the Persian Gulf and the Gulf of Oman, and in particular, the narrower part of the Strait of Hormuz, which connects the two. Oil from Kuwait, Qatar, Saudi Arabia, and the UAE must pass through the Strait of Hormuz to be exported around the world—about 20 million barrels per day according to numbers from 2024.
If the oil makes it through, there is another issue: after the strikes on Iran, the Yemen-based Houthis have threatened to launch attacks on ships passing through Pula. sea. The Red Sea is an important trade route between East and West, sitting between the continents of Africa and Asia. It flows through the Suez Canal, which leads to the Mediterranean Sea, meaning that if ships cannot pass through the Red Sea to the south, where it borders Yemen, ships must go around the African continent.
Talked to CNBCDimon repeated his skunk theory, but expanded his thinking on how an inflationary Iran alone could be proven. The 69-year-old added that in an “isolated” scenario, Iran would not materially increase the risks of inflation, but added: “It will now slightly increase gas prices…
A Fed headache
Speculators are already on the fence about whether the Fed will deliver another rate cut at its meeting this month. The latest jobs report came back stronger than expected, and President Trump is continuing his tariff agenda apace—despite a setback from a recent Supreme Court decision.
Moreover, the economist wrote in RSM mr. Nguyen on Friday, “the data on producer prices is not a good sign when it comes to inflation.” The Producer Price Index (PPI) rose 0.5% in January, the Bureau of Labor Statistics reports last week—signaling an upward trend since October.
Even writing before the weekend update, Nguyen wrote: “This is not a recipe for a rate cut in the short term, except for an unexpected shock. In our opinion, July is likely to be the earliest date for the rate cut conditions to change.
Iran may be the final nail in the coffin. At the time of writing, CME’s FedWatch The barometer prices are a 97% chance to keep the meeting in a two-week time.
