Just when oil prices were heading in the right direction to help central banks beat inflation after an 8% fall in the price of oil last week, along comes this terrible terrorist action by Hamas against Israel. Brent crude, the international benchmark, then climbed by $2.25 a barrel to $86.83.

Ironically, I was preparing for a good news oil, inflation and interest rate story for this week before this tragic event happened. Let me set the scene for what was supposed to happen before Hamas resumed its attacks on Israel. As Reuters reported late last week: “Global benchmark Brent crude futures and U.S. West Texas Intermediate crude futures have declined about $10 a barrel in less than 10 days after edging close to $100 in late September.”

Showing how the international economy plays a big role in the price of oil, Reuters pointed to the following reasons for a fall in oil prices, which would’ve been great news for us at the bowsers when we fill up our car. The price of oil affects the price of coal and natural gas and therefore our power bills. All these price movements affect inflation and in turn what the Reserve Bank of Australia does with interest rates.

It was looking so good for petrol prices, power bills going forward and then inflation and provided wage demands weren’t crazy mad, there was a chance of no more interest rate rises.

At the moment, about half the economists surveyed can see one more rise ahead, however, the likes of CBA and AMP think we’ve reached the top when it comes to rate rises. The data drop will be important for the rest of this month. If inflation looks like it’s staying around the last monthly annual reading of the CPI at 5.2%, then the RBA is bound to hike again.

This is how Trading Economics saw the key causes of the inflation jump: “It was the first increase in annual inflation since April, due mainly to faster rises in transport prices (7.4% vs 0.3%), with automotive fuel prices rising the most since November 2022.”

The July reading was 4.9% and was greeted as a plus for monetary policy in reducing inflation, so the new RBA Governor, Michele Bullocks won’t want to be seen as weak if inflation remains elevated. Clearly, this Hamas impact on oil is no help.

Regrettably, this could be the start of something bigger and nastier for the populations of Israel and Palestine. Anyone with high interest rate concerns could be rattled by the economic impact of such shocking political problems. “Energy analyst Saul Kavonic told the BBC that global oil prices have risen due to the prospect of a wider conflagration that could spread to nearby major oil-producing nations such as Iran and Saudi Arabia,” bbc.com reported.

What we need to watch is how Iran’s involvement plays out with the events in Israel. Iran has long been a supporter of Hamas and despite US sanctions on Iran oil, the country has been increasing exports and the US has turned a blind eye to it. President Joe Biden will find turning a blind eye harder to do, which won’t help oil prices and inflation. It’s possible that Israel could declare war on Iran.

The current price of oil is historically high but well below the $US120 a barrel that it hit in June last year, following Russia's invasion of Ukraine in February 2022. Oil prices fell back to a little above $70 a barrel in May this year, which was great for inflation, but OPEC+ has been cutting production explaining why oil prices were at the $US100 mark recently.

In summary, this Hamas reigniting of hostilities has many economic implications. For interest rate worriers, it isn’t good news. You can bet the likes of Joe Biden and his team are talking to Saudi Arabia and their buddies in OPEC+ about what can be done with the supply of oil.