Crude jumps after Iranian strike on Kuwait

Added: 2026-05-28

[00:00:00]The CNBC app, global market news in one place. Customizable sections and personalized alerts, stocks tracking, interactive charts and market insights, all in your hands. Stay connected, stay informed. Download the CNBC app today.

[00:00:20]A very warm welcome to scorebox Europe.

[00:00:22]I'm Steve Sedwick with Karen Cho and Ben Bulos and these your headlines. Oil prices whip soaring but as you can see on the screen currently up 3% for the globally traded Brent contract. Uh this as Q8 defends against missile and drone threat and the US bombs Iran hours after peace talk comments from Marco Rubio which had sent the prices plunging.

[00:00:46]>> The bottom line is that uh we prefer the negotiated uh diplomatic route and we're going to give it every chance to succeed. You know you're giving it every chance to succeed.

[00:00:55]Federal Reserve Governors Neil Qashqari and Austin Goulsby sound the alarm on inflation, warning CNBC on the impact of price pressures.

[00:01:04]Inflation all around the world is much too high. We're all trying to assess, you know, none of us are foreign policy experts. When is that conflict going to get resolved? We had a tariff increase in inflation which was supposed to go away. It hadn't gone away yet and then we added this one on top of it. So that's a that's a little more disturbing situation.

[00:01:28]>> Equity markets see red around the world slamming the brakes on yesterday's record close on Wall Street.

[00:01:36]>> And the EU reportedly plans a more aggressive push to loosen its dependence on US tech and back European champions.

[00:01:43]The CEO of Mistral AI tells CNBC he welcomes the block strategy to prioritize artificial intelligence.

[00:01:50]Europe is starting to be looking at at AI as a strategic asset the same way it has look at gas and and that's I would say there is a realization even in the policy maker side that something needs to be done but really the the companies I would say are the one that are making a very good morning to The crude price is pushing higher this morning after Iran's Revolutionary Guard said it had targeted a US air base in response to what it said was a US attack in the south of the country. This according to the state news agency at Tasnim. Now, it's not immediately clear which base Iran targeted. The report comes after Uwait's military said air defenses were engaging hostile drones and missiles.

[00:02:44]The origin of the attacks was not immediately confirmed. Overnight, the US carried out fresh strikes on Iran, targeting a military site believed to threaten American military personnel and commercial shipping, a US official told MS Now. Several Iranian drones were also reportly intercepted and downed. The strikes represent the second incident in three days with the US military characterizing its actions as defensive.

[00:03:11]>> All of this as divisions remain between Washington and Tehran amid efforts to reach a peace deal. US President Donald Trump said he is not yet satisfied on an agreement with Iran. Also saying he's unsure a deal should be struck if countries including Saudi Arabia and Qatar don't sign on to the Abraham Accords. The Secretary of State Marco Rubio said the US would do what it can for a deal to succeed.

[00:03:35]>> There's an agreement to be made. We want that to be made. I think there's been some progress and some interest and we'll see over the next few hours and days whether progress could be made. I just want to remind everybody, Mr. President, you know this well. you have other options available to you if that doesn't work. But the bottom line is that uh we prefer the negotiated uh diplomatic route and we're going to give it every chance to succeed. I know you're giving it every chance to succeed, Mr. President. But here's the bottom line cuz I keep getting asked what is this all about. It's very simple. Iran and these people in charge of Iran can never have a nuclear weapon and they will never have a nuclear weapon and they most certainly will not have one as long as you're president of the United States. On that point, it's very clear.

[00:04:12]>> All right, then. Marco Rubio, let's have a look at Li Price. As you can see, it came off aggressively on the right hand side of your screen uh at one point and then has just um t well I say on the right hand side the longer time frame is it came off aggressively yesterday uh on the hopes of a deal uh in the hopes of an imminent deal um and in hopes that the Iranians template which we saw in Iranian TV was the template for some form of deal and the opening up of course of the straits of Hormuz but we are trading around about 3% higher. Two Fed officials have warned on inflationary risks with Chicago Fed President Austin Goulsby telling CNBC, "Energy inflation from the Iran war has lasted longer than anticipated, creating a stagflationary shock for Asian economies." His Minneapolis counterpart Neil Qashqari said consumer prices are still much too high. But he held the resilience of the US economy, saying the labor market appears to be holding up.

[00:05:07]>> US economy has proven to be remarkably resilient. uh every time we think it's really slowing down, it surprises us in a good way with more strength. And the labor market has held up with an unemployment rate of 4.3%. So certainly I'm going to continue to watch the labor market, things like unemployment claims, unemployment claims in America have been very low. Uh right now it seems like the US labor market is holding up and I'm going to continue to look for the underlying resilience in the economy.

[00:05:33]And then of course as we were just talking about paying attention to what's happening around the world in terms of global events and what happens in the state of Hormuz. So a lot of attention on the real economy in America on the labor market and then paying close attention to what's happening geopolitically with the negotiations that are taking place.

[00:05:50]>> Well let's get out to Carrie for more Carrie. I thought it was fascinating the clip we played earlier where Neil Cash Carry was saying look none of us are foreign policy experts just really setting the scene that they can only deal with the data as it rolls across the tape. They can't crystal ball into the future.

[00:06:06]>> Yeah. And neither can any of us, right?

[00:06:08]But um you know the dual mandate from the US Federal Reserve, one is inflation, the other is the jobs market.

[00:06:13]But I think with these discussions with two Fed presidents today who are here in Tokyo uh with their counterparts from across the globe, the the question of course is on inflation, that former uh issue rather than the later. Um Minneapolis uh Fed President Neil Kashkari talked a little bit about that and what they what he sees in terms of the inflation outlook when you consider that inflation in the US was already high to begin with even before this war erupted. Take a listen.

[00:06:42]>> The inflation all around the world is much too high driven we had the co inflation of course and supply chains and the war in Ukraine and much more recently of course now we have the war in Iran and the conflict in the Middle East. So we're all trying to assess, you know, none of us are foreign policy experts. When is that conflict going to get resolved? And then importantly, when will supply chain start to normalize and when will the inflation st surge start to fade? And so, you know, I think many of us are grappling with similar issues that are just affecting economies everywhere around the world >> because inflation not only in the US but here in Japan was high already to begin with before this war started. But right now is is are f the inflationary pressures are is it mostly coming from energy or is it still the tailwind from what was left over from before?

[00:07:26]>> There's some tailwind from what was left over before. Uh obviously we also have tariff induced inflation that the world was also grappling with with the with the trade negotiations that have been taking place. That started at least for the US. I think we saw the light at the end of the tunnel when the tariff induced inflation should start to fade.

[00:07:43]But now of course the Iran conflict has upended that with uh with energy prices.

[00:07:47]And it's not simply energy, of course, it's fertilizer. And then those inputs do affect other categories as well. And so, one of the things I'm going to be looking for is when do we see energy prices affecting the broader economy and inflation in the broader economy.

[00:08:04]I think all governments and all central bankers are still grappling with the entire picture to try and get a handle on how these supply chain shocks are impacting various corners of the economy especially in a country like Japan that relies so heavily on oil and the byproducts of oil that are affecting particularly industrial products. Um, I had also a chance to sit down with the Chicago Fed President Austin Goulsby and he's in an interesting position because his area his uh responsibility covers a big portion of the manufacturing sector in the United States. But take a listen to what he had to say.

[00:08:38]>> I certainly hope so, but I'm not to I'm not totally convinced. And it's worth at least emphasizing that the initial estimates in the market in the futures markets and and of predictors um were that the price would be a lot lower than it is today. So it's already proved more lasting than than it was initially forecast. And that's a little dangerous for exactly the reason you highlight in the US context that we had a tariff increase in inflation which was supposed to go away supposed to be a one-time increase in the price level that the inflation part would go away. It hadn't gone away yet and then we added this one on top of it. So that's a that's a little more disturbing situation, more concerning situation. And if you look in Japan or if you look through throughout Asia where there are they're they're much uh greater to a greater degree energy importers.

[00:09:44]It's more just a stagflationary shock of the oldfashioned variety. So we're trying to think through the implications. I mean, timing wise, hypothetically, if this war ends, won't the lingering impacts because of the supply chain issues and the bottlenecks that are already in place for that to work through the system, how long do you think that's going to take?

[00:10:05]>> Uh, for almost certainly, you're exactly right. the people in the industry and when we're out talking to folks in the auto industry, the Chicago Feds district of the United States is by far the largest auto production and the largest manufacturing in the in the US. When we talk to executives throughout the Midwest um in the in the USA, they highlight that the supply chain it even if the war ended tomorrow, the supply chain has got damage to it that is going to take some time to repair. I do think that's already known by the market. So looking at the futures markets as I say they keep predicting that prices are going to come down somewhat significantly in in a shorter order but the speed at which it comes down everything has ratcheted up. So we're already higher than when this thing started they they thought it was it it was going to get to as a peak.

[00:11:15]There's another variable at the US Federal Reserve as an institution itself of course because there's a new Fed chair coming in in Kevin Wars has said many times that shrinking the balance sheet is going to should be a a priority. Um I did ask Neil Kashkari about this. He said if that were to be the case, anything has to be done gently, slowly communicated well in advance. But as you know, these treasuries a different situation for countries like Japan with huge debt to GDP ratios because here in Japan, most of it is held domestically. Not so in the US. Steve >> Gary, lovely to speak listen to you and listen to those amazing interviews.

[00:11:50]Thank you very much indeed for that. And of course, if we lose the summary of economic projections, as some are saying we may do under Mr. Walsh, then we're going to have less clarity. um which is interesting at this time. Let's get to Richard Porters who is professor of economics London Business School. And Richard, uh lovely to see you by the way. Good to see you.

[00:12:07]>> Um we had some great sparring with your son quite recently. So I'm looking forward to the same with you.

[00:12:11]>> I'm not sure we're going to disagree that much. We'll see.

[00:12:14]>> Oh well, let's see. Um look, very interesting listening to messes Qashqari and Goulsby there as well. Uh about the persistence of inflation, not just caused by the war, but of course caused by tariffs as well. And when we have higher interest rates, of course, what it tends to do is expose some of the the problems in the system. When when when money is cheap, when money is free, then then we don't see so much. The zombies can carry on with these higher rollover of interest rates for private companies, sovereigns, and for individuals as well.

[00:12:43]Is it exposing cracks which mean that we are something akin to 2007? Because I know that's a theme you've been picking up on.

[00:12:52]>> Well, we have some similarities with 2007. The private credit sector for example is you can make some analogies with mortgage mortgage backed securities. Uh but private credit is not as big as the MBS uh were and um and it's not the the underlying security is better than the MBS and the MBS were rated highly uh which misled investors and misled the system. So, I don't think that we're quite at the 2007 uh thank goodness um in the 2007 situation. Uh but there are some fragilities and the new incoming chair of the Fed is going to have to be aware of that. He I'm sure he is aware of that. He's being dealt he's been dealt a rather difficult hand actually coming in.

[00:13:40]>> Yeah. And before we get on to the Federal Reserve themselves, um just the banks themselves, to my untrained eye, to my man in the street, I look like they are better funded. There's more clarity on their portfolios. They have more regulatory capital as well. So just comparing 2007 to now, again, this may be glib and blind of me, but I just think if there is a crisis, it won't necessarily be in the mainstream banking sector.

[00:14:07]>> You're absolutely right. the banks are much better capitalized and they've, you know, if you look back at, for example, the uh 2020 uh COVID shock, right? Um they did very well, right? The banks were fine. The markets were not so fine and a lot of the a lot of the markets uh required central bank intervention in various both both the US and and over here. Uh so um but the banks didn't and that's because as you said much better capitalized um and they're much more cognizant of the risks uh that they that they run.

[00:14:47]>> To me the warnings are in plain sight.

[00:14:50]The question is whether the macroeconomic environment is going to tip some of these problems into a bigger bucket of disaster. And you know the private credit market is one of the issues that has been flagged by the IMF.

[00:15:01]The AI story has been flagged as a potential problem too on funding, the enormous capex spending. If we have a macroeconomic environment that is not going to stay in this benign category, what we're seeing in the Middle East as we roll on from one week to the next, this duration that's causing more inflation risk, it does cause more problems, doesn't it, for the likes of private credit and even the AI story >> very much. Um, and it's that underlying inflation pressure that's that's coming out. Um and as I say, we're posing problems for central banks all over the world, not just the US Fed. Um we have the problem here. So, uh the and it's not clear how soon that's going to moderate. You know, um as long as this war goes on, uh the pressures are are on supply are very substantial. So, I think, as I said, the central banks are in a very difficult position. they don't want to have to tighten because um becau especially in the UK we don't we don't we don't need that right um but if if the inflationary pressures continue um and it's quite clear from what Andrew Bailey has been saying that they will have to they will have to tighten >> it feels as though we're stepping away from just the jawburning and very little action from the policy makers to actual genuine action being required from them where does it leave the Federal Reserve because we just how political the situation is with Trump wanting lower rates, but all the policy levers he's pulling from tariffs now to geopolitics are driving pressure on central banks to hike rates.

[00:16:32]>> It's I don't I sympathize with Kevin Walsh. He's a nice guy. Um and he's a smart guy. Uh and he's been he's being dealt a very bad hand, let's put it that way. Uh so that um you know coming in the odds are that he's going to have to they're going to have to move to raise rates and that's you know he he's not he's only one member of the Federal Open Market Committee after all he's got to convince the others even if he wanted not to not to hike but but the pressures will be uh to to raise rates rather than lower them. The political pressures of course are something else, but you know the the economic pressures are quite clear. Uh and um uh and I think that some state some recent statements by other members of the Federal Open Market Committee make that make that evident.

[00:17:26]Uh Richard, given that we've had these warnings from some of the um regional Fed uh chairs and presidents, um do you think we're entering an era where the Fed is going to be more the FOMC is going to be more divided um than it has been traditionally?

[00:17:43]>> Yes, traditionally remember Paul Vulkar lost a vote uh at one point um in the late 80s uh and um the world didn't come the world didn't fall apart. uh so that um even if the FOMC were not to side with the uh with the chair um the world as I say wouldn't come to an end uh and that's quite possible uh but I think I he's a cautious man and he's as conscious as we are sitting around here of the underlying inflationary pressures they will come down as and when the war is is settled, but inflationary expectations are still, you know, uh uh are still up in the air right now, I think, is the answer. It's not clear.

[00:18:36]And what do you make of the the argument that goes that higher energy prices for American consumers at the pump have a a self-limiting effect on inflation because they simply don't have the disposable income to go out and spend in the way they would effectively the same impact as putting up short-term rates.

[00:18:56]>> I I think that's quantitatively probably not correct. uh that the impact uh is not that the impact is significant on on consumer finances but not so much that it's going to cause them to um cause them to moderate expenses expenditures significantly but that's just you know um that's just handwaving. C can I just bring up this point because what we've had from the data late last week the University of Michigan survey we saw very low consumer sentiment right this is the lowest in 70 years doesn't that shape expectations >> we've been seeing okay it is low it is exceptionally low now but we've been seeing those low expectations for quite some time and they don't seem to have moderated uh consumer uh expenditure consumer enthusiasm um still I think Yes. Um, it's not just it's it's it's the uh conjunction of a lot of economic pressures and the political situation as you get closer to the midterms, as people get more concerned about uh about the impact of of uh of uh inflation on family budgets and so forth and people talk about that more, right? And that itself does make I think we we economists are quite conscious of the way in which um uh I won't say cheap talk but loose talk um can affect expectations and through expectations can affect consumer behavior.

[00:20:33]>> Richard, thank you very much. Richard Porters, professor of economics at the London Business School.

[00:20:39]>> Stay with us. Coming up on the show, the EU reportedly prepares a plan to loosen its dependence on US technology. We'll have the details of exactly how. Plus, Meta unveils plans to charge for its AI features for the first time. We'll tell you who's at the front of the line. And we'll bring you more of Arjun's conversation with the Mistral AI CEO.

[00:20:59]That's all coming up right after the break.

[00:21:15]Executive Decisions is the new podcast from CNBC where I ask powerful leaders about their decisions that changed everything. I'm Steve Sedick. Here's Miss Joe Malone, CBE.

[00:21:25]>> I started that first business of skincare. That's when I knew that I was in charge of my own life. And then that's when the entrepreneur really, although I didn't know what the word entrepreneur meant, that's when the entrepreneur really took hold.

[00:21:38]>> That's executive decisions with me, Steve Sedwick. Get it wherever you're listening to this.

[00:21:57]A couple of big tech stories this morning. Meta plans to charge users for artificial intelligence features for the first time. As the company seeks a revenue stream for the AI era beyond uh just ads, it will start testing its two AI subscription plans in Bolivia, Guatemala, and Singapore next month. The cheapest version starts at $7.99 per month. The company says it's offering premium tools that allow users to enhance their presence, boost content, and automate tasks. And I wonder whether this is just the beginning. Well, we now have another new subscription to add to the pile we already have. Now, the EU is reportly planning a new plan to loosen its dependence on US technology by backing European alternatives in a number of critical sectors. That's according to the Financial Times, which cited a draft document. It says the block is looking to increase incentives to help with the construction of data centers whilst also favoring homegrown cloud and AI tech firms. The plan could also represent a more aggressive push from the EU from regulating big tech to favoring European services. Arjun could up with the CEO of one of Europe's most valuable tech startups, Mistral AI, and joins us now.

[00:23:06]Arjun, this is a company that was building out frontier models, now also part of sovereign AI. What did you hear from the company, and do you think there's going to be more of a green light for European companies like this to get ahead of American competition?

[00:23:21]>> Yeah, Mra certainly has been one of the big beneficiaries of this broader tech sovereignty conversation within uh the EU. it sort of positioning itself as this alternative to open AI to anthropic and so what's interesting here is that Mistra started as sort of this sort of frontier model company but has been developing building out infrastructure and trying to build out into somewhat of a similar play to to a hyperscaler or more of an open AI uh it's invested so far about 4 billion euros in data centers across France and Sweden and it's ramping up that capacity through to 2030 as well arthur speaking here in France in front of lawmakers a couple of weeks ago and he warned that Europe has a 2-year window to build out independent AI infrastructure or be beholden to US companies. I had a chance to catch up with Arthur Mench and I asked him uh to expand on some of those comments. Let's listen in. Europe is starting to be looking at at AI as a strategic asset the same way it has looked at gas and and that's I would say there is a realization even in the policy maker side that something needs to be done but really the the companies I would say are the one that are making it happen what we see with all of our customers in the US in Europe in Asia is that uh the kind of proposition that we bring which is centered around open source models that can be customized is resonating with them and that brings demand And we believe that that window which is fairly short actually because there's only a limited amount of chips, a limited amount of memory and a limited amount of of of electricity. Uh we believe that the demand we see allows us to take a very meaningful position in everything that is related to mission critical AI deployment. Uh so that I think is is the hope uh that we have. But really the what I what I'm regretting and that's the reason why I was asked to actually go to see lawmakers in France and and I wanted to share that this is not only a technological problem it's actually a macroeconomic problem. Uh you can't afford to have a commercial deficit of a trillion uh if you actually want to stay competitive and in the race and so that's something I think that people are realizing that we're talking about something that should be concerning for any one of us.

[00:25:26]So Arthur Mench framing this uh idea of tech sovereignty more around strategic importance but also a macroeconomic one saying that all the value that's being created here in Europe effectively just goes back uh to the US via those US companies. But the reality is as Europe pushes forward to want to build its own AI infrastructure. So much of it is still dependent on foreign companies.

[00:25:46]You think about the chips from Nvidia and AMD over in the US. Those are manufactured of course by TSMC over in Taiwan. the memory is coming from SKH Heinix and Samsung over in South Korea.

[00:25:56]And so that's not going to change anytime soon. And so that poses a challenge for for true independence.

[00:26:02]That's a point I put to Arthur Mench and asked him, you know, is that going to change? And what does that mean ultimately for Europe's sex sovereignty?

[00:26:08]Let's listen in.

[00:26:10]>> Europe could actually build more, but for this it needs a market. Uh and for for it to to have a market, it actually needs to have cloud providers. Uh so we go where we think we have an edge which is the digital services uh the deployment of AI serverless systems that allows to build AI applications the deployment of a highv value skilled workforce that allows to turn those uh serverless services into AI applications that deliver value and we build value for that. Then we reinvest in R&D. we actually buy chips. Uh and eventually we think that the tech ecosystem in Europe in particular can grow to a point where it becomes a good idea for a fab to set up for a for a company like Samsung for instance or a company like Aenix or a company like TSMC to set up a fab in in in Europe. But for this to happen, you actually need for those companies to have a market and the market is uh the infrastructure that is getting built. So let's start where we are strong. That's what we shared. And then let's let's create something that allows every countries of the world to get enough leverage and to participate into the air revolution in a way that is not creating unfair dependencies.

[00:27:19]>> I thought that was an interesting point of view from Arthur Mench saying that if Europe builds out infrastructure, it makes more of a case for some of these fabs or these manufacturing plants, chip manufacturing plants to set up shop in Europe. That's something that just hasn't happened yet. We haven't seen TSMC and Samsung and others make huge investments on leading edge chips in Europe. It's happened over uh in the US.

[00:27:39]But clearly Arthur's view there is uh really that if more infrastructure is built, there'll be a bigger customer base for these companies uh to set up shop. But this tech sovereignty conversation is certainly not going away and mouse sees itself very much central to that conversation going forward.

[00:27:54]Guys, >> Arj thank you very much indeed. I have to say Paris Spring really does suit you. We'll speak to you again a little later. Thank you. Uh we'll be back in just a few moments after the break.

[00:28:05]We'll be looking ahead to the European market open and a negative start to the Thursday session being called according to the futures. We'll see you in a few moments.