The cost of a broken ceasefire

0:02Good morning from the Financial Times. Today is Thursday, July 9th. And this is your FT News Briefing. The Middle East conflict is heating up again, and that's probably going to keep hurting the global economy. But American oil companies, they're benefiting from all this. Looking forward into the future, prices are expected to remain elevated for as long as the conflict goes on in the Middle East. I'm Mark Filippino, and here's the news you need to start your day.

0:43The U.S. launched strikes against Iran yesterday for the second night in a row. The latest attacks came just hours after President Donald Trump said the ceasefire was over. Here he is at yesterday's NATO summit. I don't want to deal with them anymore. They're scum. You know what scum is? They're scum. They're sick people. Trump also said the U.S. might reinstate its naval blockade on Iran's ports, but only target Iranian ships. Oil prices jumped on Tuesday. In response to all the news, Brent crude reached over$80 a barrel.

1:18Now, this conflict in the Middle East has had a huge impact on inflation, and that's been the economic story of the year. And yesterday, the International Monetary Fund released a report warning that this story is not going anywhere anytime soon. Global headline inflation has been revised up to 4.7 % this year, while our core inflation forecast is broadly unchanged. That 4.7 number, that's up more than half a percent from last year and a bigger jump than the IMF's previous estimate back in April. The FT's U.S. economics correspondent, Myles McCormick, joins me now to discuss the IMF report. Hi, Myles.

1:55Hey, Mark. So, Myles, before we get going, important context. These numbers from the IMF's World Economic Outlook were compiled before yesterday's strikes. What from the report stood out to you? So the key takeaways were initially that it felt growth this year would hold up, would kind of weather the storm despite the Middle East conflict, but that inflation would edge up. And as you say, this report was compiled before. tensions flared again this week which makes it all the more prescient it was warning that it wouldn't take a lot in the middle east for inflation to yeah really really kick off again and it did right because we saw energy prices spike after the strikes resumed didn't we we did exactly so crude oil after declining steadily for the last couple of months really spiked this week which kind of goes to show how nervous markets are, how nervous traders are, that tensions could flare between the U.S.

3:02and Iran, and we could return to a messy situation akin to the one we saw earlier this year. And again, we should remind folks that the report was compiled before yesterday's strikes, and it made some predictions for what would happen if the conflict heated up again. What were those? The key prediction it made was that we'd see a spike in commodity prices. I mean, in particular, oil prices, which, as we said, we're already seeing. And what it said in relation to this was that the reason things perhaps weren't as bad as they could have been earlier this year in terms of the oil price spike was that Western economies were able to release significant volumes of reserve oil stocks to help kind of douse the price spike.

3:52And what the IMF warns in this regard in its latest report is that a lot of those stocks are now running dry. They're at multi-year lows. So if we have a return to hostilities that curb oil supply again, the world will be less able to counter it by releasing emergency supplies. So the price effect on the oil market could be so much worse than it was before. So now that the ceasefire has ended, and who knows if this conflict is going to keep going, what does this mean for economies across the globe? In a nutshell, it probably means higher interest rates. In the IMF report, it was already predicting that the ECB would probably have to hike again this year, that the US Federal Reserve would probably have to hike this year.

4:40And if oil prices spike, as they might now do, the onus on central banks worldwide to act to curb the inflationary burst will be all the more present. So what this could mean is higher borrowing costs worldwide. Miles McCormick is the FT's U.S. economics correspondent. Thanks so much, Miles. Thanks, Mark.

5:06American oil companies look like they're on a collision course with President Trump. The oil majors and refiners are expected to report huge profits later this month. That's because of the U.S.-Iran war. And while those earnings might be good news for them, Trump has accused some big oil companies of price gouging. I'm joined now by the FT's Steph Finley in Houston to talk about this. Hi, Steph. Hi, how are you doing? I'm doing well. So just how big are the profits we're expecting to see from these U.S. oil producers and refiners? Quite a large jump. So ExxonMobil and Chevron's net income is forecast to more than triple from the previous quarter.

5:44Exxon's is expected to rise to$15 billion and Chevron's to$9.7 billion. And that's as the company's reaped large profits from high crude, diesel, and jet fuel prices. We've seen the price of oil really fluctuate, Steph, especially this week. How do you think that will affect these companies later this year? So I think what we'll see in this results is the impact from the Iran war and those soaring prices for crude, but also for refined products, the diesel and jet fuel. So that's why we're seeing refiners like Marathon putting out record profits. It's likely to be their highest since 2022, when Russia launched its full scale invasion of Ukraine and disrupted global energy markets.

6:29Looking forward into the future, prices are expected to remain elevated for as long as the conflict goes on in the Middle East. And yesterday we saw President Trump declare that the ceasefire is over, sending the price of oil back up. So it looks like this sort of uncertainty is in place for the foreseeable future. One of the things that's come out of this year is Trump really coming down on these companies for high gas prices at the pump. Tell me more about that. For Trump, this is a big political issue. U.S. consumers feel the pain of the prices at the pump. Trump campaigned for re-election on a promise to make America affordable again.

7:16So he has been consistent in campaigning for lower prices. And in June, he ordered a Department of Justice investigation into energy companies over what he said was price gouging. This was also a tactic that was employed by President Biden when prices surged as a result of the Ukraine war. Trump has said that he wants gas prices to be$2.25 a gallon. That level was last reached in 2020 during the pandemic. And how have these companies responded to these attacks by Trump? We haven't seen a huge amount of comment from the companies. Chevron's chief financial officer, Emer Bonner, told media in June that gas prices will fall as the situation continues to normalize.

8:08But she also said that energy companies were doing everything they can to resolve the situation, but that it would just take time. Is there anything that Trump can do to bring down gas prices besides, you know, figuring out a way to end the war with Iran? I think ending the conflict would be the biggest step towards normalizing things. But if that's not the case, the administration can continue the waiver of the Jones Act, which requires shipping between U.S. ports to be conducted by American ships. That's currently waived to allow for more transport around the U.S. The administration can keep on putting pressure in the form of investigations like what President Trump recently announced, but previous investigations haven't tangibly brought down prices.

8:56And then if hostilities continue between the U.S. and Iran, the administration may be forced to take more drastic action and impose some kind of export limits. Now, the administration has ruled this out, but with the midterm elections coming in November, they may have to reassess. Steph Finley is the FT's Houston correspondent. Thanks so much, Steph. Thank you.

9:25You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

9:49If you've got a teenager, it's time to have the talk. You know, about investing. With the new Schwab Teen Investor account, teens can gain hands-on investing experience and build positive money habits. It's an account co-owned by you and your teen, so you can monitor and engage with the account while your teen learns how to invest and manage money. Learn more at schwab.com slash teen. Mom, can you tell me a story? Sure. Once upon a time, a mom needed a new car. Was she brave? She was tired, mostly. But she went to Carvana.com and found a great car at a great price. No secret treasure map required.

10:25Did she have to fight a dragon? Nope. She bought it 100 % online. From her bed, actually. Was it scary? Honey, it was as unscary as car buying could be. Did the car have a sunroof? It did, actually. Okay, good story. Car buying you'll want to tell stories about. Buy your car today on... Carvana. Delivery fees may apply.