If world history has taught us anything, it’s that human beings enjoy killing each other. And so, it’s with a heavy sigh that I devote this Mind Over Markets column to the eruption of violence this week between the state of Israel and the militant Palestinian group Hamas.

The strife right now in the Middle East is the deadliest since the Yom Kippur War of 1973. How and when this tit-for-tat brutality will end is anybody’s guess.

However, as an investor, here’s the takeaway: When geopolitical conflict rises, crude oil prices typically rise as well, amid growing concerns over the stability of supply. That’s especially true, of course, when the oil-rich Middle East is directly involved.

It’s also axiomatic that aerospace/defense stocks and gold prices get a boost when a major shooting war breaks out. We’re seeing all these sector and asset tendencies unfold.

In today’s column, I will focus on the world’s most valuable commodity: crude oil.

Ever since an enormous geyser of oil exploded at Spindletop Hill, Texas in 1901, crude oil has been the coveted prize at the center of modern military conflicts.

Read This Story: Oil Investors Should Stay Alert in This Volatile Energy Market

Oil prices have been boosted by the Hamas incursion into Israel proper, with an elevated geopolitical risk premium built into trading (see chart).

However, despite the spike in crude prices, uncertainty buffets the oil markets as it remains unknown how the violence will exert a lasting effect on supply and demand for crude. The global economy also could take a hit, which would destroy energy demand, hurt corporate profits, and put downward pressure on equities.

Oil prices have regained some of the ground that they lost last week. The energy sector has thrived so far this year on higher crude prices, although prices and the overall sector have pulled back recently due to renewed recession fears.

Concerns that the Federal Reserve’s stubbornly hawkish monetary policy will damage the economy, and hence dent energy demand, weighed on oil prices last week.

The war in the Middle East has given energy investments added impetus. Regardless, the future for oil prices is cloudier than ever.

The end of the peak summer driving season and high crude prices have dampened U.S. gasoline demand much lower than the seasonal norm. Since its July peak, gasoline demand has lost roughly 1 million barrels per day (b/d).

OPEC+ continues to maintain a tight hand on the oil spigot and the cartel is bullish on oil demand. In its recently published 2023 World Oil Outlook, OPEC+ revised upward its world demand forecast, expecting peak demand by 2045 at 116 million b/d, which is a staggering 6 million b/d increase versus last year’s report.

This optimistic forecast also is the oil cartel’s way of thumbing its collective nose at analysts who predict the inevitable demise of fossil fuels due to the rise of renewables.

These oil market factors make the Fed’s efforts to tame inflation much tougher. As my colleague Robert Rapier, our inhouse energy expert, recently wrote:

“OPEC+ supply reductions are the primary accelerator behind renewed oil price momentum nearing $100 per barrel. Absent a change in their stance, oil may continue rallying, presenting challenges for inflation control and economic stability as the U.S. heads into a presidential election year.”

On Tuesday, the main U.S stock market indices closed in the green, as Treasury yields retreated due to recent dovish comments from Fed officials. Here are the closing numbers:

• DJIA: +0.40%
• S&P 500: +0.52%
• NASDAQ: +0.58%
• Russell 2000: +1.14%

Oil prices inched lower Tuesday, taking a breather after their sharpest rally the day before since April. Oil prices for the rest of 2023 are likely to follow an upward path. Brace yourself, because that’s a bad omen for inflation.

Editor’s Note: The Israel-Hamas war, the Russia-Ukraine quagmire, rising tensions between the U.S. and China, political dysfunction in Washington, DC…we’re facing a perilous time. How can you protect your portfolio? If you’re nervous about the volatility I’ve just described, consider the advice of Robert Rapier.

Robert Rapier is chief investment strategist of our premium advisories, Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

After painstaking research, Robert found a rare type of investment that has raised its payouts by double-digits every year for the past 16 years. If you’re looking for ways to generate steady income, regardless of the market’s ups and downs or geopolitical tensions, Robert has the remedy. Click here for details.

John Persinos is the editorial director of Investing Daily.

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