LARRY KUDLOW: My advice to investors, look at this battle and see the prosperity that lies on the other side.
FOX Business host Larry Kudlow discusses the impact of the Middle East conflict on inflation on ‘Kudlow.’
We all know that the prices of crude oil and gasoline have increased because of the Iran war. And to me, it’s a small price to pay for a little energy cost to defeat the terrorist regime in Iran, and change history. However, economists are still trying to determine what, if any, effect it will have on inflation and output.
I’ve seen recessionary situations, inflationary situations, stagflation, you name it, it’s all there. And I’ve seen a lot of comparisons to the oil shocks of the 1970s and early 1990s. Maybe even the Russian shock of 2022. Let me caution, however, against relying on these past episodes to predict the future. First, this oil shock appears to be very short-lived. To quote President Trump “the war will end soon, because there are almost no targets left.”
When all is said and done, this war may only last four to five weeks, not enough time to have a major impact on the economy. You may see inflation in the March CPI number, but people will be looking at it. It won’t last. Actually, the dollar exchange rate went up, not down. And unlike the 1970s, there is no supply shock, because most of our oil is now produced in America and Canada. In fact, the most important thing to remember is how much more oil we produce today than we did back then. “Bomba, baby, bomba.” Pure genius from Mr. Trump.
Israeli Special Ops veteran Aaron Cohen breaks down President Donald Trump’s ‘war of uncertainty’ strategy against Iran, explaining how US pressure and the presence of the Navy’s Fifth Fleet are confusing Iranian leaders to ‘Kudlow.’
Oil production in the 1970s remained below 10 million barrels per day. Today it is about 14 million. And we don’t have wage and price controls today, or long lines at the tap, because of Trumpian deregulation. So we actually don’t have a supply shortage today, we don’t really need Middle Eastern oil, even though we are below world oil prices. Gasoline is up about 50 cents a liter. It’s a big story. Yes, for a while that will cut into middle class wallets and pocketbooks, but it’s important to remember that like oil producers, higher prices benefit parts of the population. Not all consumer disposable income is going in one direction anymore.
Now here’s another point, interest rates haven’t changed much. In the early months of oil, it appeared that inflation raised interest rates, which in turn slowed the economy. The 10-year Treasury yielded about 4 percent, slightly higher. And the 30-year mortgage stayed at about 6 percent. So, we didn’t have a real oil supply shock. We didn’t have a real interest rate shock. And it is likely that energy prices will fall below pre-war levels.
Therefore, the One, Big, Good Bill of Mr. Trump with tax cuts, deregulation, and “drill, baby, drill,” will continue to provide economic stimulus once this war is over. For investors, I say look for temporary disruptions.
Operation Epic Fury by Mr. Trump is changing the path of the Middle East and the rest of the world to freedom. And freedom in the Middle East and everywhere else will bring great prosperity. So for investors, look at the war and see the great prosperity that lies on the other side.
