Iran Deal Could Lower Oil Prices, Expand Fed's Rate Cut Capacity

Kevin Hassett, White House National Economic Council director, stated that reaching a nuclear deal with Iran would lead to a decline in international oil prices. In an interview on May 24 (local time), Hassett said an agreement with Iran would result in a sharp drop in energy prices.

This, he analyzed, would increase the possibility of the U.S. central bank (Fed) lowering its benchmark interest rate. He added that this would create more room for the Fed to independently take action to cut rates.

Hassett identified energy prices as a primary driver of recent inflation, suggesting that falling oil prices could cause the inflation rate to turn negative. He analyzed that easing geopolitical tensions with Iran and reaching an agreement could stabilize the energy market, thereby alleviating inflationary pressures and positively impacting the Fed's monetary policy operations.

An agreement with Iran could include the resumption of free navigation through the Strait of Hormuz, which could lead to the normalization of global crude oil supply within one to two months. The White House believes an agreement with Iran would contribute to normalizing crude oil transport through the Strait of Hormuz. If this scenario materializes, global crude oil supply could stabilize within one to two months.

Concerns had been raised that if Iran were to blockade the Strait of Hormuz, a surge in energy prices could burden the U.S. economy and the Trump administration. President Donald Trump had commented on social media that negotiations with Tehran were proceeding 'orderly and constructively.'

Kevin Hassett, director of the White House National Economic Council, added that he respects the independence of the Fed and expects the Fed chair's independent judgment.