From Glen’s Desk - May

The rising conflict in the Middle East has led to oil prices reaching six-month highs at the end of April. As fears of a full-scale war continue to mount, oil prices and fuel costs are increasing at rates that could lead to lasting, worldwide implications in several different sectors. April saw Iran’s first-ever direct missile attack against Israeli territory, following Israel’s airstrike on the Iranian consulate in Syria.  While both sides have thus far refrained from an all-out war, tensions are certainly mounting.

The Middle East is home to some of the world’s largest oil reserves, making it a critical global location for energy security.  Conflict here could both immediately and severely impact oil prices across the world. Because of the growing concerns regarding the war in the Middle East and its effect on the stability of oil supply in that region, the risk premium incorporated into oil prices has risen. Indeed, the CEO of the American Petroleum Institute remarked that he has concerns that the Israel-Hamas war could endanger energy supplies and the resulting prices.  Already, numerous oil tankers have decided to stop traveling through the Red Sea because of attacks by Houthi rebels.  Over 8 million barrels per day of oil and oil products traveled the Red Sea this year, making this a critical trade route.  Should the route close entirely due to the conflict, it is highly likely that prices will rise accordingly.

To put the potential effects in a broader context, the most recent commodity markets report released by the World Bank stated that if the Middle East conflict reaches a moderate supply disruption, the average price of Brent crude could rise to $92/barrel. If a more severe supply disruption occurred, prices could rise to more than $100/barrel.  Beyond just raising the prices of oil and gas, this increase would raise global inflation by almost one percentage point, impacting sectors across the board.  

Here in the Dallas/Fort Worth metroplex, where our offices are located, gas prices are on the rise. As of the end of April, gas was up $0.60/gallon from the end of December 2023.  While we are still $1.433 away from the record high of $4.656/gallon set in June 2022, if the predictions made by the World Bank are reached, it is possible that gas prices will reach or surpass our record highs. Across the United States, gas prices have reached a record high for 2024, as of the end of April.

Although there are significant risk factors at play in this global crisis, our overall outlook is positive in the long term. Statistics suggest that there will be an upswing in the markets over the next calendar year.  While it is important to be mindful and informed regarding global events, there is no cause for panic. Just as we have weathered global crises before, we will weather any potential conflicts that are to come. If you have any questions or concerns about how your portfolio could be impacted by these events, don’t hesitate to reach out to your financial planner. Our team members would be happy to discuss this with you in more detail. You can reach our office at (469) 212-8072 or visit www.gdswealth.com for more information.

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¹ The Wall Street Journal, 2024.

² Organization of the Petroleum Exporting Committee, 2023.

³ CNN Business, 2024.

⁴ Ibid.

⁵ Ibid.

⁶ The World Bank,2024.

⁷ Ibid.

⁸ U.S. Energy Information Administration, 2024.

⁹ Ibid.

¹⁰ Forbes, 2024.