Oil prices stay elevated as Iran supply fears overshadow Russia measures
Decisive action by the U.S. is expected to result in low crude oil prices as major U.S. energy companies join Chevron and help significantly boost Venezuelan crude oil production.
There are also large protests in Iran over its deteriorating currency and oppression of its citizens. The word “azadi,” which is the Farsi word for freedom, is being chanted during demonstrations. Iran’s rial has dropped 60% in value since June, when it launched missiles into Israel. Tehran is also struggling with a drought that is so severe that people may have to move as water taps run dry. These large protests may result in a leadership change, which would be a welcome development, since Iran’s president recently said that the country was at war with Europe, Israel, and the U.S., which is not the sentiment of many Iranian citizens.
Europe remains furious that it has been largely excluded from the Ukrainian/Russian peace negotiations, even though both Trump and Zelenskyy called European leaders after their meeting at Mar-a-Lago. Further adding to tensions, U.S. Secretary of State Marco Rubio banned five European Union (EU) officials from traveling to the U.S. for their censorship efforts. As an example, Thierry Breton, the former EU commissioner for digital policy, has been banned. Breton was one of the architects of the notorious Digital Service Act that has infuriated many technology companies. Rubio and the Trump Administration are striving to stop censorship, especially as it pertains to U.S. technology companies.
Despite all the international distractions, the Consumer Electronics Show (CES) in Las Vegas this week is expected to remind investors that AI and technology are leading overall U.S. economic growth. The robotics displays are expected to be especially popular, along with massive televisions that are getting cheaper every year. The U.S. is the world’s technology leader, but China is also very innovative and a serious competitor.
Speaking of competition, I should add that Tesla (TSLA) announced that it sold 418,227 vehicles in the fourth quarter. Tesla sales declined to 1.64 million electric vehicles (EVs) in 2025, down 8.4% from 1.79 million EVs in 2024. This is the second straight year that Tesla’s EV sales have declined. China’s BYD is now the EV sales leader, and its sales surged 28% in 2025 to 2.26 million. BYD’s expansion in Europe and throughout Latin America has been very successful and has clearly hindered Tesla sales. However, Tesla investors seem more obsessed now with the Robotaxi and Optimus robots, so the stock has been remarkably resilient.
There is no doubt that my 5% GDP growth prediction on Fox Business recently raised some eyebrows. I am expecting 5% annual GDP growth to emerge no later than the second quarter. International companies are now being forced to onshore more in America to avoid tariffs. This is happening now in the automotive and aerospace industries as well as the pharmaceutical industry. Of course, the data center boom is still accelerating and leading U.S. GDP growth due to rising order backlogs. Due to “drill baby, drill,” the U.S. has an abundance of natural gas and is leading the world in data center developments, thanks to Bloom Energy (BE) as well as GE Vernova (GEV) which can provide fuel cells and turbines to data centers with a direct natural gas supply and effectively avoid the electric grid.
Residential investment was a 5.1% drag on GDP calculations in the second and third quarters. One of the keys to improving GDP growth moving forward is to shore up residential real estate markets, which remain weak due to high mortgage rates, higher insurance costs, as well as a supply glut in many key markets. Speaking of deflation, the prices of U.S. condominiums declined 1.9% in September and October according to the Intercontinental Exchange. High HOA fees and insurance costs were reasons cited for falling condo prices. According to the Intercontinental Exchange, in nine major metro areas, more than 25% of condos have fallen below their original sale price. Obviously, multiple Fed rate cuts can help shore up home prices, but for now, weak home prices are raising deflation concerns that the Fed needs to address.
Another reason the Fed needs to cut key interest rates is that the Institute of Supply Management (ISM) announced that its manufacturing index declined to 47.9 in December, down from 48.2 in November. This is the 10th consecutive month that the ISM manufacturing index has been below 50, which signals a contraction. Also significant is that the new export orders component rose to 46.8 in December, up from 46.2 in November. Despite these “green shoots,” ISM reported that only 2 of the 17 industries surveyed reported expanding in December, which were Electrical Equipment, Appliances & Components, as well as Computer & Electronic Products. Clearly, data center demand is helping boost orders for these two industries.
If deflation appears due to (1) weak housing/rental prices, (2) low crude oil prices, and (3) the deflation that we are importing from China and other weak economies around the world, the Fed is going to have to slash key interest rates 100 basis points pretty darn quick. President Trump is expected to nominate a new Fed Chairman soon, so existing Fed Chairman Jerome Powell is expected to become a lame duck. The Fed, in its December Federal Open Market Committee (FOMC) minutes, signaled that at least one more key interest rate cut of 0.25% was likely, but any deflation news will likely cause the Fed to slash key interest rates a lot more in the upcoming months.