Tensions are rising in the Middle East as escalations between Israel and Iran continue to intensify. Iran launched its retaliatory attack on Israeli military and defense sites by Friday night, leading Israel to counter-attack, but this time targeting oil and natural gas facilities on Iranian soil.
The attack targeted two vital energy facilities: oil facilities in Tehran and natural gas sites in Bushehr, as reported by Al Jazeera. These attacks led to explosions and fires in these facilities, given the combustible nature of the materials stored within them. The Shahran oil facility in Tehran suffered extensive damage, with Iranian state media reporting that efforts to contain the massive fire are still ongoing.
Moreover, the explosions at Bushehr’s gas infrastructure have disrupted production, raising concerns about global energy supply stability.
Rising Energy Costs Globally
In a scenario where Iran cannot maintain its oil and gas exports due to ongoing conflict, global energy prices could surge, affecting not only the two countries in conflict but also the rest of the world.
Iran produces about 3.3 million barrels of oil per day, making up for almost 3.5% of the total global supply. While China is the largest trade partner in Iranian oil alongside India and Turkey, oil is priced globally through benchmarks like Brent crude and West Texas Intermediate.
This means that this instability will likely trigger major volatility across financial markets, especially when markets open on Monday.
The prediction platform Kalshi is pricing that oil prices will hit $104.00 per barrel by the end of the year, a steep jump from the current valuation around $70.00.
Rising Energy Costs = Rising Inflation For The Fed to Deal With
A spike in oil and gas prices would affect nearly all aspects of the economy, particularly those that reach everyday people. In America, transportation, manufacturing, and consumer goods will become more expensive in this scenario, adding yet another layer of headache for the Fed to deal with.
The push in consumer prices would make the Federal Reserve’s goal to achieve a 2% inflation rate nearly impossible in the short term. And hopes of an interest rate cut in the next FOMC meeting, only a couple of days from now, have all but diminished.
For Bitcoin, this catastrophic scenario presents a critical opportunity to solidify its role as a store of value, especially as institutional adoption surges in 2025. With sovereign wealth funds, corporate treasuries, and major asset managers integrating Bitcoin into their portfolios, its status as a macro hedge could be put to the test this year.
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