President Donald Trump has repeatedly sought to dampen rising oil prices by telling investors what they’ve been dying to hear: The war with Iran is over.
But after hearing that message for weeks, the war continues and with no plans to reopen the Strait of Hormuz, they continue to repair her.
Almost two weeks after Trump’s sudden announcement of “productive” talks with Iran sent premature optimism through the oil markets, energy analysts and traders say the president’s efforts to tempt investors to lower prices have lost him credibility – and convinced them that the economic consequences of the war are only getting worse.
“Now he’s saying the same thing as two weeks ago,” said Gregory Brew, senior analyst on Iran and the energy sector at political risk firm Eurasia Group. But what he’s talking about doesn’t matter, because he’s continuing the war and the Iranians aren’t buying it.
After Trump reiterated on Wednesday that Iran wanted a ceasefire, oil markets weary of days of head-scratching did not react. And that night, Trump’s insistence that the war was “almost over” was quickly overshadowed by his pledge to step up the US bombing campaign and leave it to other countries to try to reopen the strait.
Oil prices have since risen more than 11% in response – a drastic move that could push gas costs beyond the $4-per-gallon level and deepen concerns about the affordability that threatens to cost Trump and Republican control of Congress in November.
In the energy industry, officials are preparing for several more months of high oil and gas prices regardless of how Trump ultimately decides to withdraw from the war, as the damage to the world’s stockpiles becomes irreversible and reverberates across continents.
Iran’s retaliatory closure of the Strait of Hormuz nearly a month ago has already caused major economic tensions, but economic pressure around the world has only just begun. Key production facilities in the Middle East that have cut production to avoid an oil spill in the Persian Gulf will need months to recover if traffic returns to normal.
And while Trump during Wednesday’s first speech said that the US is protected from bankruptcy because of its large oil reserves, the energy crisis that has engulfed the world still has to make all kinds of goods and services – from fertilizers to airplanes to plastic products – very expensive for Americans. Even if Trump pulled out of the Middle East immediately, investors believe it could take months or years to see oil return to pre-war prices.
“We’ve dumped too much oil into the system,” said Rory Johnston, an oil market researcher who writes for the energy journal Commodity Context. He pegged the cost of the war so far at about half a billion barrels of oil.
He added: “At no point do I see us coming out of this war in a healthier place than when we started.
The stark economic reality has alarmed Trump’s allies who were already concerned about the political risks of going to war. It has led to the search for new ways to reduce the impact on US prices.
Some of Trump’s friends and allies – aware of the president’s reduced ability to speak to the markets – have urged him to end the war as soon as possible and return his attention to domestic problems that are creating patient sentiment ahead of the midterm elections.
And while the White House insists that gas prices will “go down” once the war ends, administration officials privately sign off. They pressed industry representatives on whether US companies have new oil sources to tap in the coming months, said a person involved in the negotiations. Those talks yielded little in the way of promising prospects.
“It’s having a negative impact now for sure,” Stephen Moore, Trump’s former economic adviser, said of the war’s toll on the US economy. “So it has to be over as quickly as possible.”
In a statement, White House spokesman Taylor Rogers said “Trump’s energy management agenda has us ready to meet now.”
“The President has made it clear that Operation Epic Fury is in its final stages and we are rapidly achieving our military objectives,” he said. “In the meantime, the Administration has taken several important steps to reduce short-term disruptions and stabilize energy markets.”
However, among traders and analysts who once hung on Trump’s every word, there is little willingness to buy into his confidence now that they see greater global influence.
If Trump declares victory and leaves the Middle East in the next few weeks without reopening the strait, he will hand over a fifth of the world’s oil supply to Iran. That would put the government in an even stronger financial position than before, allowing Iran to charge oil tankers a hefty fee to use the strait — and determine what the country’s exports are.
Under that scenario, analysts project, oil prices are expected to remain above $90 per barrel beyond the end of the war, or about a third of where prices were before the war began.
But other choices can produce worse results. If Trump instead chooses to step up and follow through on his threats to bomb Iran’s energy infrastructure, it will exacerbate immediate oil shortages and widespread fears of retaliation — which could disrupt global energy trade and push prices higher.
Either way, energy experts said, oil prices will remain much higher than the $60-barrel level that the US enjoyed earlier this year – and no stimulus from Trump can change that yet.
“I don’t think there is a return to pre-war gas prices, at least not this year and probably not for several years,” said Mark Zandi, chief economist at Moody’s Analytics. “Every day that passes, and as the hostilities continue, there is more damage.”
In addition to the emergency negotiations, these conditions also provide little assurance that the Strait of Hormuz will be fully opened – a development that could change the way oil flows around the world.
Trump’s top officials increasingly believe that the crisis will remain under Iran’s control for the foreseeable future, which is likely to set the stage for a second takeover operation that could provoke further disruption without much assurance of success.
Trump on Wednesday night vacillated between insisting that the conflict would “open naturally” after the war and urging US allies to take responsibility for reopening it by force.
“The hard part is done, so it should be easy,” he once said.
Yet that provides little comfort to industry officials who have noted that even Trump’s military does not seem to agree; US officials continue to assess that the strait is too dangerous for the US Navy to begin escorting ships, according to people involved in the negotiations.
“If the war had been three or four days, then there would have been a sharp increase in the price and now the price is going down a lot,” said Brew. “But we’ve gone through since Hormuz has been closed for over a month, and it’s doubtful that Hormuz will reopen anytime soon.”
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