Donald Trump may have started his war with Iran with the aim of regime change. But it has quickly became a battle over control of the global oil futures market. Iran may have few, if any, conventional weapons it can use to block, retaliate against or bloody the United States. But it has the ability to menace, if not close, the Strait of Hormuz. And that means the ability to trigger a global energy and economic crisis that may force the United States or at least its president — synonymous for the moment — to relent. What’s both fascinated and confused me is the response of global oil markets to the crisis, which seems based on at least a short-term willingness to credit Trump’s public comments as having some strong relationship to reality, which of course is absurd.
Let me give you at least a few examples of this.
The Strait or Hormuz has been effectively closed for roughly two weeks. That’s a massive disruption already baked into the next month or so of oil shipping. A few days ago, Trump and then his Secretary of Energy calmed oil markets in part by claiming that they were going to begin escorting oil tankers out of the Strait or even seize the Strait to ensure shipping. And yet, the maritime experts I’ve been following since this crisis began say that the U.S. Navy currently has no real presence in the Gulf and nowhere near the class or number of ships in the Gulf to carry out such a mission. This is a major and highly relevant fact! The location of U.S. Navy carrier groups is not a secret. So I was sort of baffled by how the U.S. news media and perhaps oil market traders aren’t connecting these pretty clear dots. If U.S. news sources report that the U.S. is going to resolve the crisis by escorting oil tankers I’d like them to mention that the U.S. doesn’t currently have any ships in the region to do anything like that.
Another example. Oil prices really settled a couple days after Trump abruptly shifted from regime change to saying the war was actually over and would be ramping down within days. Yet in the days since it’s become clear that, whatever Trump might want, it is the Iranians who are now escalating in their efforts to keep the Strait closed. And yet oil prices have only partially bounced back to their position when Trump felt he needed to say the war was done. Trump’s claims, which seem visibly out of sync with reality, look like they’re still mostly holding oil markets in place.
One more example. Just yesterday the International Energy Agency said the current crisis has created the largest supply disruption in global oil market history. Does that really fit with oil futures remaining in the mid-90s this morning and only getting back to $100 per barrel this afternoon?
Needles to say, I’m not an oil trader. Presumably these folks know quite a lot more about this than I do. They are likely reacting to two things. A lot of oil supply and price scares haven’t really panned out. The reaction to the Russian invasion of Ukraine was an example of that. Bad, but not nearly as bad as people at first predicted. Markets have also internalized TACO from the experience with tariffs. Don’t worry: Trump always chickens out. It won’t turn out to be that big a deal. Those are probably good and salient points.
It still seems like global oil markets are treating Trump like a normalish president whose public statements have some connection to reality and/or U.S. government actions. Or perhaps, not terribly surprising, oil markets are managed by disproportionately Trumpy people. And they have confidence in him. The problem of course is that unlike tariffs, this isn’t something the United States can all a halt to on its own. Iran also has a say. As the cliche goes, starting wars is much easier than ending them, in large part because other people, especially the people you went to war, with get a say. I can’t help thinking we’re in very new territory for Trump’s self-made crises with his attack on Iran because he’s brought other global players into the mix who he cannot control and who now see global economic crisis as the best path toward bringing him to heel.