The US economy is facing 2 hot wars heating up at a bad time for the White House
Yields are above multidecade highs, both gas and diesel prices continue to climb, and critical midterm elections are around the corner.
Adding to pressure on the US economy and the current administration, the world’s two largest hot wars are heating up.
‘Iran knows when the midterms are too’
In the Middle East, dual fronts along the Strait of Hormuz and the Red Sea have seen a resurgence of conflict in recent weeks that has heavily disrupted oil flows in the region.
Multiple tankers and container ships in the Strait of Hormuz either caught fire or sank this week in the Iran-dominated waterway. The Washington Institute has tracked more than two dozen attacks recorded since the start of the month.
President Trump has said the US military won’t resume airstrikes inside Iran before the midterm elections as White House negotiators continue angling for a diplomatic solution to the conflict now in its eighth month.
Read more: How to protect your money as Mideast turmoil fuels market volatility
At the same time, administration officials are reportedly war-gaming a major offensive to come after the November elections, when the president will be less encumbered by the political needs of the Republican Party.
“The Trump Administration does not want Brent crude oil at $106/bbl going into the midterm elections, just a month away, and has said that he only plans to escalate offenses against Iran after the midterms are over, with what he hopes to be, a red wave,” Rabobank cross-asset macro strategist Molly Schwartz said in a recent note to clients.
To the west along the Red Sea, Yemen’s Houthi militants have sharply escalated their campaign against the Saudi coalition opposing the group’s bid for wider territorial control, launching multiple rounds of strikes on major airports inside the kingdom that have killed more than a dozen people and wounded hundreds.
Houthi militants recently struck an office building belonging to the state-managed oil giant Saudi Aramco (2223.SR). While the kingdom’s oil production remains largely undisrupted, violent pestering by the Iran-allied Houthis is driving up oil prices.
“Iran knows when the midterms are too,” Schwartz added, “and if they want to further complicate Trump’s plans, now is the perfect time to have the Houthis stir up trouble and make it increasingly difficult for the US to avoid intervening.”
Ukraine, Russia, and Starlink throttling
Ukraine and Russia, which have been at war since Russia executed a stealth annexation of Crimea in 2014 and invaded its neighbor in February 2022, recently both escalated offensive strikes against critical infrastructure ahead of another winter.
Kyiv leverages long-range drone attacks to knock out oil refineries inside Russia, claiming to have disrupted half the country’s refining capacity, while Moscow has repeatedly targeted power plants and other civilian infrastructure inside Ukraine.
Over the weekend, President Trump called for an “energy ceasefire,” part of a bid to bring down US diesel prices that has included a deal that will see the US buy Russian fuel, breaking with several years of sanctions meant to pressure the Kremlin’s war chest.
Shortly after the announcement, Russia launched a round of strikes against power plants in Ukraine, prompting Ukrainian President Volodymyr Zelensky to say Kyiv would continue to target Russian refineries.
On Wednesday, Ukraine reported rate-throttling of Starlink, satellite communications services developed by SpaceX (SPCX), and its military subscription service StarShield.
On Thursday evening, citing an official familiar with the matter, Reuters reported that “the order to limit a satellite system used by Ukraine for battlefield communications and drone operations came from inside the White House.”
Ukrainian troops use both Starlink and Starshield terminals.
Oil prices and yields pressure US economy
Taken together, the conflicts are putting immense pressure on the global energy system — and, increasingly, on the US economy.
While oil exports from the Persian Gulf have returned to prewar levels via alternative routes, exports through the waterway itself — which before the war accounted for roughly one-fifth of global oil flows — have remained far below prewar levels.
And prior to 2022, Russia provided roughly 10% of the world’s diesel exports. But Moscow has largely been cut off from the market after international sanctions and domestic export bans.
The US economy is feeling the disruption: Yields on US 10-year and 30-year Treasurys have climbed to levels not seen since the early 2000s, pressuring consumer and corporate borrowers. Gasoline and diesel prices have soared to record levels.
Recent reports from the Bureau of Labor Statistics showed inflation readings on both consumer and producer prices accelerating faster than expected, with energy prices rising at the quickest pace since March, just after the start of the Iran war.
For the White House, those economic pressures have complicated the outlook for midterm elections less than three weeks away.
In comments to reporters on Wednesday night, President Trump said again that the war in Iran will “end very soon,” and the White House is reportedly considering the use of a GBU-43/B Massive Ordnance Air Blast Bomb (MOAB) — the largest non-nuclear bomb in the US arsenal, which would mark a major step-up in escalation.
Iran is not backing down: Parliamentary speaker Mohamed Bagher Ghalibaf said on Wednesday that Iran will fight until its demands are met in negotiations.
In Ukraine, President Zelensky has ordered renewed attacks on Russian refineries.
And with only a few short weeks left until the midterms, the reheating of both wars has left the White House — and, by proxy, the US economy — between a rock and a hard place.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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