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The Middle East crisis will fuel a surge in U.S. inflation to 4.2% this year, the highest in the G7, according to an OECD forecast that highlights the cost of the U.S.-Israeli war with Iran.
The Paris-based organization predicted that energy prices would sharply increase inflation around the world, with “significant downside risks” to growth if disruptions to energy exports worsened, according to the Financial Times.
While the OECD expects U.S. inflation to jump from 2.6% in 2025. Countries including China, South Korea, and India also face a sharp increase in price growth because of energy shock.
“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,” the organization predicted in its interim outlook.
Risking pressure on consumers would hurt U.S. economic growth, which is expected to slow to 2% this year and 1.7% in 2027, the OECD said. Global growth is forecast to slow from 3.3% last year to 2.9% in 2026, before picking up to 3% next year.
Prior to the Iran war, global growth was proving resilient, driven in part by a jump in capital spending on AI as well as surging stock markets.
Different strait in the crosshairs: There’s a strait in the Middle East vital to global energy markets that Iran is threatening to close if President Donald Trump fails to wind down the Iran war, according to Politico.
An Iranian military official told the country’s semiofficial news agency Saturday that if the U.S. and Israel attack more of the country’s energy infrastructure, Iran would escalate “insecurity in other straits, including the Bab el-Mandeb Strait and the Red Sea.”
The strait, hundreds of miles from the Strait of Hormuz, at Yemen’s southwestern tip, is a pathway for ships carrying about 10% of the world’s oil and natural gas supplies.
Bab el Mandeb has been targeted previously by the Houthis, a Yemen-based rebel group supported by Iran that blocked the strait by attacking ships, using drones and missiles.
“I have no doubt in my mind that eventually the Houthis will enter and they will do two things – first, block the Bab el Mandeb strait, and second try to prevent the Saudis from having tankers in its Yanbu port taking oil,” said Danny Citrinowicz, a former top Iran researcher for the Israeli Defense Forces.
In the past month, the strait has become an alternative route to get Middle Eastern oil to market as Iran’s threats have effectively shut down Hormuz. While Houthis agreed to a ceasefire last year, their leader warned this month that “our hands are on the trigger when it comes to military escalation.”
“If the war escalates, we should expect them to get involved and resume their maritime campaign,” said Noam Raydan, a senior fellow at the Washington Institute for Near East Policy and an expert on energy and maritime risks in Middle East.
The Houthis slowed global shipping through Bab el Mandeb from 2023 to 2025. Despite the ceasefire, the group never stopped threatening the region that could seek to replicate Iran’s success in Hormuz, Raydan added.
Ship Insurance: Treasury Secretary Scott Bessent said a U.S. insurance program meant to boost shipping through the Strait of Hormuz will begin soon, a move that may help flows of much of the world’s oil and gas supplies, according to Bloomberg.
Bessent’s predictions, delivered Thursday during a meeting of President Donald Trump’s cabinet at the White House, come weeks after the president announced the U.S. International Development Finance Corporation would provide insurance guarantees with naval escorts to help ensure safe passage for oil tankers and other vessels through the strait.
“The oil market is well-supplied. We’ve taken actions to ensure that oil supplies stranded at sea are made available to the global market,” Bessent said. “Your bold actions, like the Development Finance Corporation’s maritime reinsurance program, in conjunction with Central Command, will soon provide shippers through the Gulf region with a level of security we have never seen before.”
Dash for cash: Recent activity in funding markets shows a discreet push by financial institutions to build buffers that would help protect against any credit meltdowns or market distress, a sign they perceive rising risks even as overall conditions remain stable for now, reports Bloomberg.
A cluster of indicators – from increases in Federal Home Loan Bank lending to shifts in money-market fund allocations – all suggest that institutions, at the margins, are positioning themselves more defensively and in some cases are paying up to do so. Apollo Global Management Inc., through its insurance arm Athene, was the second-largest borrower in the entire FHLB system last year, a sign private-credit platforms are part of this move.
These shifts aren’t occurring due to current strains, it’s more about individual institutions ensuring they have enough cash if conditions worsen, against a backdrop of mounting worries around private credit and broader economic unease.
New trade deal: European Union lawmakers finally approved a trade deal with the U.S., clearing a key obstacle for the long-delayed agreement despite lingering uncertainty around Washington’s tariffs, according to Bloomberg.
The European Parliament voted in favor of the deal on Thursday. The pact would erase tariffs on U.S. industrial goods, while setting a 15% tariff ceiling for most EU products.
The move signals potential relief for growing strains on the transatlantic relationship. The U.S. has been increasing pressure on the EU to finally implement the deal, which was originally struck last summer. EU lawmakers held out, repeatedly delaying ratification after President Donald Trump threatened to seize Greenland and the Supreme Court invalidated Washington’s global tariffs.
The vote is “a very important milestone in our efforts to provide stability and predictability to European business, workers and citizens in our trade relationship with the United States,” said EU Economy Commissioner Valdis Dombrovskis, speaking to lawmakers on Thursday morning.
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