Why did Wall Street rally and oil prices fall after US midterm elections?
Global markets saw a sharp shift in sentiment after the US midterm election results, with Wall Street ending higher and crude oil prices plunging more than 8% on Wednesday. Investors bet that the Democratic Party's sweeping victory could increase pressure on President Donald Trump to de-escalate the Iran conflict, easing concerns over global energy supplies.
Oil prices extended their decline on Thursday, with Brent crude falling below the $95-per-barrel mark. In the latest market snapshot, Brent was trading at $93.83 per barrel, down 0.83%, while US West Texas Intermediate (WTI) crude stood at $87.05, down 1.21%.
The latest levels mark a decline of around 8.8% in Brent and 9.3% in WTI compared with the previous levels of $102.84 and $95.95, respectively, shared on Wednesday.
The sharp fall in oil prices came after Democrats won control of both the US Senate and House of Representatives in the midterm elections, marking a major setback for Trump's Republican Party.
The election outcome has raised expectations that a Democratic-controlled Congress could constrain Trump's military options and push for a negotiated end to the US-Israeli conflict with Iran.
The conflict had triggered a surge in crude prices amid concerns over disruptions to energy shipments through the Strait of Hormuz, a key global oil transit route.
Investors are now assessing whether the change in political balance in Washington could make it harder for Trump to continue the conflict, potentially easing pressure on global oil supplies.
According to a Reuters report, Brent crude fell 8.7% to $94.62 a barrel on Wednesday, while US WTI dropped 8.3% to $88.12. Both benchmarks touched their lowest levels since August 31.
US President Donald Trump said Washington had no immediate plans to strike Iran and acknowledged that the war had contributed to his party's electoral defeat. However, analysts have cautioned that the situation remains uncertain, with negotiations between Washington and Tehran still far from a resolution.IRAN'S HORMUZ MOVE ADDS TO SUPPLY RELIEF
Adding to the developments around energy supplies, Iran has lifted Strait of Hormuz transit restrictions for ships from India, China, Iraq and Qatar, according to an Economic Times report.
Amir Hayat Moqaddam, deputy chairman of the Iranian parliament's national security and foreign policy committee, said ships from these four countries could pass through the Strait without restrictions.
The report said the move was linked to shared interests between Iran and these countries. Moqaddam also said that allowing Indian vessels to pass would facilitate the import of medicines from India.
People familiar with the matter told the Economic Times that the Indian government did not pay transit fees for ships whose clearance was negotiated by the Ministry of External Affairs.
India and Iran had held negotiations between March and June to allow India-bound vessels carrying energy supplies to pass through the Strait. The easing of transit restrictions could offer some relief to India's oil and gas supply concerns.WALL STREET RALLIES AFTER DEMOCRATIC SWEEP
The fall in crude prices was accompanied by a strong rally in US equities on Wednesday.
Wall Street ended sharply higher after Democrats secured control of both chambers of Congress, easing some political uncertainty and improving investor sentiment.
The S&P 500 rose 1.6%, while the Dow Jones Industrial Average surged 3%, gaining 1,569 points. The Nasdaq Composite advanced 1.4%, according to an Associated Press report.
Lower oil prices also supported broader market sentiment by easing concerns over inflation and energy costs.
However, the rally was not uniform. Energy stocks came under pressure as crude prices fell, while some data centre and AI infrastructure companies declined amid concerns that Democratic gains could bring tighter regulation and restrictions on data centre expansion.OIL INDUSTRY WORRIED ABOUT POSSIBLE WINDFALL TAX
Even as oil prices decline, the US energy industry is facing another concern following the Democratic victory: the possibility of a windfall tax on oil companies.
A Moneycontrol report, citing Bloomberg, said oil industry executives and lobbyists are concerned that Democrats could use their control of Congress to push for a tax on extraordinary profits made by energy companies during the Iran conflict.
Democrats had already proposed legislation that would require oil companies to compensate consumers when fuel prices remain high. The proposal could now become part of broader negotiations between Democrats and Trump.
A bill introduced in March by Senator Sheldon Whitehouse and Representative Ro Khanna proposes a quarterly tax on oil companies when Brent crude trades above its average price in 2025, which was around $68 a barrel. The proceeds would be used to fund rebate cheques for consumers.
Rapidan Energy Group has estimated a 30% chance that Democrats could pass an oil windfall tax or reduce tax breaks for fossil fuel companies after taking control of Congress.
However, the possibility remains uncertain. Trump has not explicitly backed a windfall tax, and a White House official described speculation about a deal with Democrats on the proposal as baseless.
The American Petroleum Institute has also opposed the idea, arguing that such taxes could discourage investment in domestic energy production.
For global markets, the immediate focus remains on whether the political shift in Washington can help bring the Iran conflict closer to an end. A sustained decline in crude prices could ease inflationary pressure and provide some relief to oil-importing economies such as India. However, any breakdown in diplomatic efforts could quickly change the direction of prices.- Ends
