Rising Oil Prices Reignite Inflation Fears

Oil spike ripples through global markets

The price of Brent crude rose again on Friday, at one point topping $91 a barrel. Growing tensions in the Middle East have pushed the global benchmark to levels last reached in October.

That poses a potential problem for President Biden ahead of the election and raises new questions about when the Fed will start cutting interest rates.

Some analysts believe the oil rally is just beginning, creating a fresh inflation risk for central bankers who are struggling to keep price-increases in check. JPMorgan Chase forecast last week that oil would climb above $100 by September. And, in a bad sign for motorists, gasoline prices in the U.S. have climbed 6 percent in the past month just ahead of the North American summer driving season.

Market watchers have been concerned about a wider Middle Eastern conflict after Hamas attacked Israel on Oct. 7. Most recently, oil traders have been bracing for Iranian retaliation after an Israeli airstrike on Tehran’s consulate in Damascus, Syria.

“If we get a direct conflict between Israel and Iran, that’s something that will likely restrict the supply of oil coming from the Middle East,” Matt Maley, an analyst at Miller Tabak + Co., told Bloomberg.

That edginess was evident on Thursday. Stocks fell and crude prices jumped after the White House disclosed details of Biden’s tense phone call with Prime Minister Benjamin Netanyahu of Israel, in which the president demanded that more be done to protect civilians and aid workers in Gaza.

The S&P 500 is on pace for its worst weekly performance since October, according to Deutsche Bank data. Investors are fretting about how rising energy prices could mess up the Fed’s outlook on cutting interest rates.

Another big factor to watch: The jobs report comes out at 8:30 a.m. Eastern, which is likely to reveal new clues on wage growth.

HERE’S WHAT’S HAPPENING

Is Alphabet weighing an advertising mega deal? The parent company of Google has discussed a takeover bid for HubSpot, a maker of online marketing software whose market value is more than $33 billion, according to Reuters. An acquisition would be Alphabet’s biggest ever — and a rare example of a tech giant pursuing a giant takeover while facing tough antitrust scrutiny in Washington and abroad.

Ford delays production of several electric vehicle models. The carmaker said it would focus on making more hybrid cars and trucks, as it stalls manufacturing at least two fully electric lines. It’s the latest auto company to pull back from E.V.s amid slower-than-expected sales because of cost, range anxiety and more.

Nelson Peltz is said to claim a hefty consolation prize from his Disney fight. The activist investor earned a paper profit of about $300 million from his 16-month battle with the media giant, The Wall Street Journal reported. That may reduce the sting from Peltz failing to win any Disney board seats, though the roughly 40 percent gain in the share price it represents is about equal to the S&P 500’s return for the same period.

A “chess game” at Paramount

When a company evaluates a deal involving management or a controlling shareholder — think RJR’s acquisition of Nabisco — it usually appoints a special committee of board members to weigh what to do.

That’s the case in Paramount’s talks to merge with the studio Skydance. The assembled group faces competing demands, The Times’s Ben Mullin and DealBook’s Lauren Hirsch write: agree to a deal that its controlling shareholder, Shari Redstone wants, but also balance that against what’s best for other shareholders.

Paramount’s complex ownership structure makes things tricky. Redstone controls the media giant via her holding company, National Amusements, which owns a supervoting class of stock. But National Amusements owns just a small fraction of Paramount’s overall shares.

Redstone has endorsed a deal with Skydance, which would also buy out National Amusements, likely for a premium. But Paramount also received an overture from the investment firm Apollo Global Management about buying the whole company for $26 billion — which Paramount ignored, amid questions about how it would be financed.

Many investors seem unhappy with how things are going. Paramount’s shares tumbled 8.5 percent on Thursday, after CNBC reported that a Skydance deal might require the company to raise more equity. “It is beyond baffling to see the Paramount board of directors ignore an all-cash offer for 100 percent of Paramount,” the media analyst Rich Greenfield told The Times.

Some prominent shareholders have already weighed in:

• Mario Gabelli, whose asset management firm owns 10 percent of Paramount’s voting stock, says he doesn’t favor a sale now because he believes the company is undervalued.

• John Rogers Jr., whose firm owned 1.8 percent of Paramount’s stock as of Dec. 31, says he’s open to a transaction with Skydance.

The fate of Paramount will come down to its special committee, composed of independent directors. Such a group, at least on paper, has a lot of power, since it can decide not to recommend the Skydance bid.

Those directors have to play a game of chess, according to Jim Woolery, a veteran deal maker who runs the advisory firm Woolery & Company. That may mean using Apollo’s interest as leverage to extract more favorable terms from Skydance.

The committee also could negotiate a low breakup fee in any deal agreement, as well as a so-called go-shop provision to allow it to seek higher takeover bids elsewhere.

A big goal is to avoid long and costly litigation. The activist investor Carl Icahn tied up the sale of Dell for months in 2013 by arguing that the transaction was unfair to most shareholders.

Redstone appears aware of that risk, leaving deliberations about Paramount’s future to the special committee. But it’s clear she’s a seller in any case, even if the board opposes the Skydance bid.

Pressing pause on climate rules

The S.E.C. has been under fire from red states and business lobbying groups since approving new rules last month that require companies to disclose their climate risks.

The future of the green mandates, a big piece of President Biden’s policy agenda, look less certain after the agency took the unusual move of halting them on Thursday.

The growing legal risk may have left it little choice, according to Joseph Grundfest, a Stanford law professor and former S.E.C. commissioner. “The commission has likely smelled the coffee” and voluntarily stayed its rules before being ordered to, he told DealBook.

More than 30 parties are challenging the new rules, which call for greater transparency about the climate risks facing companies. (Opponents include energy companies and industry groups.) When the rules were first introduced, Gary Gensler, the S.E.C. chair, said they would help protect trillions in investors’ money.

A group of Republican state attorneys general subsequently sued the agency, arguing that it had overstepped its authority and that companies already disclose enough climate-risk data to investors. Their counterparts in Democratic-controlled states have defended the rules.

The S.E.C. says it isn’t backing down. “In issuing a stay, the commission is not departing from its view that the final rules are consistent with applicable law and within the commission’s long-standing authority,” the agency wrote in its order. It added that it “will continue vigorously defending the final rules’ validity in court.”

Meanwhile, companies already face heightened climate disclosure requirements in the E.U. and California. Similar mandates are pending in New York and Illinois.

Politics could muddle the future of such mandates. If Republicans regain the White House, expect an unwinding or watering down of the S.E.C. rules, said Jane Norberg, a partner at Arnold & Porter who formerly worked at the commission.

Who will pay for the collapse of the Baltimore bridge?

President Biden is set to visit the collapsed Francis Scott Key Bridge in Baltimore on Friday, to look at the damage caused by a deadly accident that will cost billions to fix. Biden pledged that the federal government would pay the “entire cost” after a cargo ship rammed into the bridge, but the fight over insurance claims has started — and could take years to sort out.

The shipping channel will be partly reopened by the end of the month, officials said on Thursday. They added that they hoped the lane would be fully cleared by the end of May, easing pressure on companies that have had to find alternatives to one of the biggest ports on the East Coast.

Figuring out who has to pick up the tab will be expensive and messy. Insurers and reinsurers could be on the hook for up to $4 billion, industry experts told The Times.

The legal wrangling started this week when the ship’s Singapore-based owner and the operator filed a U.S. court petition to limit their liability to $43.7 million. They cited an 1851 law that allows shipowners to largely cap financial damages to the value of a ship after a crash, provided the owner isn’t at fault.

If the shipowner were found to be liable, the calculation would change:

• The first $10 million of claims would be covered by its insurer, a mutual association called Britannia P&I Club. This could include coverage for deaths, debris removal, property damage and cargo damage.

• Costs after that and up to $100 million would be shared by members of the London-based International Group of P&I Clubs, an association that insures about 90 percent of the world’s oceangoing tonnage.

• Beyond that, dozens of reinsurers would cover costs up to about $3 billion. Some reinsurers expect that businesses looking to file claims could use that widely publicized figure as a target.

The costs are big but not a death knell for the reinsurance industry. The sector has faced much bigger claims in recent years — in 2022, Hurricane Ian caused more than $50 billion in insured losses — and policymakers hope it will be able to cover the payouts without requiring government support.

The White House said responsible parties would be held accountable but it wasn’t going to wait to start rebuilding.

THE SPEED READ

Deals

Policy

• Inside the campaign by allies of President Biden to win the endorsements of anti-Trump Republicans like Nikki Haley — and their donors. (CNBC)

• The Biden administration wants for-profit space companies to start paying for their use of government resources like air traffic control. (NYT)

Best of the rest

• The C.E.O. of YouTube warned that any efforts by OpenAI to train its artificial intelligence tools using videos on its platform would violate its terms of service. (Bloomberg)

• Apple plans to lay off 614 employees in California after shutting down its car project, its biggest round of job cuts since the pandemic. (CNBC)

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