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The Democrats’ resounding U.S. midterm victory has given markets a fresh reason to reconsider the path of global interest rates. Yet oil prices, economic growth and Washington’s fiscal choices remain major sources of uncertainty for investors and central banks.

The Federal Reserve, Bank of England, European Central Bank and Bank of Japan have all raised rates in recent months. Renewed monetary tightening has partly reflected surging oil and gas prices caused by the U.S. and Israel’s war with Iran.

The conflict has also intensified a global shortage of refining capacity, driving up the cost of diesel, gasoline and jet fuel. Polls had pointed toward major Democratic gains, but control of both congressional chambers remained uncertain before the vote.

Democrats ultimately secured clear victories in the House and Senate, strengthening lawmakers’ ability to challenge President Donald Trump’s policies. ICE Brent crude fell 8.7% on Wednesday and closed below $100 a barrel for the first time since September.

The decline reflected rising expectations that Trump could be more inclined to reach a deal ending the Iran war. Such an agreement could help restore Gulf refinery capacity and improve export conditions, while Vice President JD Vance’s lengthy statement blaming Republican losses on the war reinforced that market view.

Dan Coatsworth, head of markets at AJ Bell, pointed to “an admission from the Republican camp that the Iran war cost them a clean sweep in the election, which the market has taken to indicate that a swift resolution to the Middle East conflict could help them save face.”

“Trump might relish the opportunity to take all the credit if an end to the war leads to a big drop in energy costs.” Andrew Slimmon, senior portfolio manager and head of the Applied Equity Advisors at Morgan Stanley, said lower oil could ease a source of pressure on inflation and the Fed.

Bank of America rates strategist Ralph Axel said historic data show a tight connection between oil prices and global rates. Higher oil over the next three to six months would probably produce “significantly higher interest rates” in the U.S., with an even greater effect in the U.K. and Germany.

Still, crude’s advance on Thursday and choppy trading on Friday showed that an end to the nearly nine month conflict remains far from assured. Coatsworth said oil had started climbing again and that rate expectations had not shifted radically from their levels before the election.

Money markets on Thursday showed a moderate change from one week earlier in both the U.S. and Europe. Traders assigned a slightly greater chance to monetary easing over a one year horizon, while the two year shift was more pronounced in the euro area.

CNBC analysis of LSEG data showed rate pricing falling 8.7 basis points for the ECB over the week, compared with 4.6 basis points for the Fed. Laurel Rapp of Chatham House said Democrats would seek votes constraining Republicans and the administration’s Iran war powers, though whether those efforts would bind the administration remained uncertain.

Eurasia Group’s Clayton Allen told CNBC’s “Squawk Box Asia” that the war is unpopular domestically, but leaving the Middle East without tangible victories would also be unpopular. He expected an escalation within weeks, highlighting the political obstacles surrounding any potential exit.

Bank of England Governor Andrew Bailey said energy pressure reflected obstructions in the Strait of Hormuz, limited refining capacity and low European gas storage. “A peace process in the Middle East will not shift all of those elements,” he told CNBC’s Steve Sedgwick after the bank raised rates by 25 basis points Thursday.

Ken Egan, head of European Sovereign Credit at KBRA, said the outlook depends largely on whether economies retain enough momentum for existing inflation pressures to persist. Europe is entering winter after months of high energy prices, with the full effects still moving through the broader economy.

Jane Foley, head of FX strategy at Rabobank, said the Fed must consider whether Democratic control could produce greater fiscal restraint and less inflation. She cautioned that the fiscal outlook remains unclear because many Democrats were elected to ease pressure from living costs.

James Sullivan of J.P. Morgan called possible changes to elevated U.S. fiscal stimulus the “million dollar question.” He said inflation reflects the Iran war, tariffs, tightness in parts of the energy sector and heavy government spending during an economic expansion with low unemployment.

Daniel Clifton, head of policy research at Baird Strategas, also identified the U.S. data center expansion as a major issue. He said tighter fiscal policy, rising Fed rates and slower AI capital spending could produce a policy mistake in mid 2027, though his forecast calls for a mid cycle slowdown rather than a U.S. recession.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.