Trump’s Efforts to Defuse the Oil Spike Aren’t Working

Crude oil went back over $100 a barrel, and the situation is only getting worse, as Iran intensifies its attacks on tankers in the Persian Gulf and on energy and port infrastructure in nearby Gulf countries.

The reserve release announced Wednesday, of 400 million barrels of oil and oil products, is more than twice as large as the largest release before, including the ones in the early days of the 2022 Russian war on Ukraine. The move, especially the United States’ decision to release almost half of its already-shrunken strategic oil reserves, was a recognition that the conflict with Iran and its disruptions to global energy flows are not likely to end soon, regardless of the Trump administration’s rhetoric about being virtually done with the war.

“Some 400 million barrels of oil shows up and the price goes up. That could be the market starting to understand the dimensions of the problem,” said Kevin Book, managing director of ClearView Energy Partners, an energy consultancy in Washington. “On the one hand, the market goes, ‘Oh, thank goodness.’ But on the other hand, the market realizes, ‘Oh, my goodness.’”

Benchmark oil traded right around $100 a barrel Thursday afternoon, an 8 percent rise on the day.

Part of the problem is that the release of reserves, a Hail Mary move reserved for desperate supply disruptions, will take place in a dribble over a period of months, while the shutdowns to oil production and tanker flows are happening today. 

The United States said it would release its 172 million barrels over a period of four months, which would be about 1.4 million barrels a day. The International Energy Agency has never managed to release more than about 1.3 million barrels a day, according to Energy Aspects, a London-based energy consultancy. So the best-case scenario is that the silver bullet, which can only be used once, will cover at most 3 million of the missing 20 million barrels of crude and petroleum products. 

That is particularly a problem for countries in Asia (with the exception of China and Japan, which have their own reserves). The U.S. oil that will be piped out of salt caverns in Louisiana in the coming weeks will take until May at the earliest to reach Asian markets, Energy Aspects noted. That is little consolation for countries in the region that are already seeing the impacts of the disruptions around the Strait of Hormuz.

Bangladesh is dispatching troops to quell fuel riots and is seeking a waiver to import Russian oil. Vietnam and South Korea are looking to cap fuel prices. Pakistan is closing schools and imposing other austerity measures due to the fuel crisis. Across Southeast Asia, countries are closing offices, limiting travel, and seeking to mitigate sharply rising costs for transport and industry.

At least there are global reserves of oil; there are not such reserves of liquefied natural gas (LNG), which is Asia’s other big headache. The closure of the Strait of Hormuz, and the temporary shutdown of gas production in Qatar, the world’s second-largest LNG exporter, spell particular pain. That will affect industrial activity across South, Southeast, and Northeast Asia, economists said, with the repercussions potentially lasting for months due to delays in restarting production and exports when the war ends.

The reason even those emergency measures haven’t calmed volatile oil markets is because the Strait of Hormuz remains effectively closed, and Iran’s new leadership remains determined to exploit its main element of leverage by keeping it that way. Only a handful of tankers and other ships have made it out of the restricted waterway since the war began, mostly “shadow fleet” tankers connected to Iran and some Chinese tankers with Iranian oil that Tehran lets through. Reportedly, Iran is exporting more oil now than it was before the war began.

And Iran continues to escalate the war despite signals from U.S. President Donald Trump that he wants to wind it down. Since Wednesday, five ships inside the Persian Gulf have been hit by projectiles, including two tankers; since the war began, there have been at least 20 reports of incidents and attacks on shipping in the vital waterway, according to U.K. Maritime Trade Operations.

Iran has also stepped up attacks on shore infrastructure around the region, including a fuel tank in Bahrain and an oil facility in Oman (the latter of which is crucial because it is outside the threatened strait). Saudi Arabia’s big oil fields were targeted again, as were civilian structures in Kuwait, with both missiles and drones.

Iran could ramp up the disruption campaign much further. This week, Iran reportedly laid at least 10 maritime mines in the Strait of Hormuz, prompting Trump to threaten Tehran if mining continues. Iran has an estimated 5,000 to 6,000 mines, a mix of old contact mines that are relatively easy to defeat with minesweeping countermeasures and a more advanced variant that presents challenges to disposal efforts. 

The problem for the United States is that it decommissioned its last minesweepers in the Middle East earlier this year, and British minesweeping capabilities—which were a huge assistance in previous minesweeping efforts in 1991 and 2003—have shrunken dramatically. The United States has heavily attacked Iran’s fleet of mine-laying vessels (though Tehran has hundreds of small craft that can do the job as well). Washington is hoping that littoral combat ships with minesweeping modules and a host of unmanned underwater vehicles will enable it to clear mines at a faster pace than it did in previous conflicts, but a debate rages over the true U.S. ability to clear the strait, especially while under fire.

“The market is not adequately considering the long-term consequences of not just naval mines, but also the possibility that anti-ship missiles could be difficult to stop,” Book said.

Trump’s offer to use the U.S. Navy to escort tankers has not materialized yet, and is unlikely to anytime soon. U.S. Secretary of Energy Chris Wright briefly cheered markets earlier this week when he posted on X that escorts had begun, but that proved false (the post was quickly deleted and later blamed on Energy Department staff having “incorrectly captioned” a video of Wright speaking). Wright now acknowledges it could be weeks before such escort missions are even possible, as the U.S. Navy has been telling the shipping industry since the war began.

And the U.S. plan to backstop maritime insurance markets is not functional yet, despite some progress. The U.S. Development Finance Corporation said it will work with Chubb, a big insurer, to offer $20 billion in reinsurance for certain ships. But that coverage would not cover the risk of oil spills—a major liability for tanker owners—and it is not enough at any rate to overcome concerns among shipowners and mariners of the risks to life and limb of traversing the strait. Trump said on Wednesday, just as several tankers burst into flames near Kuwait, that the “straits are in great shape.”

Taken together, all that discourages almost all shipping lines from trying to pass through the strait, which means that missing cargoes, stranded ships, and shuttered oil and gas production just get worse every day. 

In other words, the Trump administration has tried to unleash all of its policy levers—military, financial, and energy-related—to curb the consequences of the war that it unleashed, and all have been in vain so far. At this point, the only thing that will start to bring normality back to the energy market is a halt to Iran’s threats and actual attacks. And that is not something that Trump can end with wishful thinking or victory speeches.