The US may be winning the shooting war with Iran, but a spiraling oil crisis is costing the world far more.
Kyiv Post
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The military clash underway in the world’s most “flammable” region, the Middle East, isn’t going to end anytime soon.
US President Donald Trump claims triumphantly that his military action against Iran is already complete, but that’s debatable. More importantly, a lengthy “oil war” is just beginning because Iran has blocked transit through the Strait of Hormuz.
One investment banker suggested that due to ongoing and significant supply risks, “$200 [per barrel] is not outside the realm of possibility this year.” Already, prices are more than $100 a barrel, so high that a global recession is likely. The Israeli-US conflict with Iran has sparked history’s biggest energy crisis, and thus far, Iran is winning because it holds the world to ransom.
Obviously, Iran deserved to be attacked and its regime replaced because it is a pariah state that abuses women and spreads terrorism around its neighborhood and beyond. But any leader with a rudimentary knowledge about economics and oil markets would have known the importance of the Strait of Hormuz and prevented the Iranians from shutting it down before starting a fight with them.
Good strategists, like chess masters, think several moves ahead, but that wasn’t the case, and now the fight’s begun. The Strait is virtually shut, and oil prices are spiraling. Current traffic is down from 20 million barrels daily to six million barrels due to continuous shelling and mining by Iran along the narrow waterway.
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Hormuz is the energy and economic lifeline for the entire region, for oil customers in Europe and China, and for the global economy. This begs the question, why didn’t America or Israel realize that the Strait had to be secured militarily first before starting a full-blown war against the Ayatollahs?
Also, why wouldn’t they have realized that Iran’s clergy would also bomb the oil facilities of its Persian Gulf oil rivals, creating oil shortages and driving prices even higher? Didn’t they realize that Iran’s crazy leaders regard their Arab neighbors as religious infidels because they are Sunni and do not ascribe to Iran’s severe Shia beliefs? Or that they intend to bring “Western” enemies and their allies to their knees economically and hold them hostage indefinitely, no matter their casualties?
Apparently, Tehran’s water-borne blackmail wasn’t predicted or factored into the equation by either the Pentagon or by Trump’s allegedly investment-savvy cabinet. This constitutes a major strategic lapse. The US has degraded the regime’s forces and will eventually take over the Strait, but the price in blood and treasure will be enormous, and oil prices will become stratospheric. Oil affects the price of all other energy sources, and energy underpins business, trade, industry, and the world economy as a whole. Investment guru Jim Cramer on CNBC this week suggested that investors should not consider the market “safe” until the vital energy corridor is reopened.
Soaring oil prices cannot be reversed easily. And once the fear of future risks becomes embedded, it may be difficult to lower. Aside from panic, prices are based on supply and demand, and all Iran has to do is control the Strait, keep its own oil in the ground, and bomb its neighbors to stop their oil production too.
Conversely, the Americans and their allies can only lower oil prices if there is dramatically more oil on the market. They can also fight back by lowering demand for oil by imposing rations on users, industry, and consumers. Fuel-switching can be mandated where possible, but large-scale energy restructuring away from fossil fuels takes years to complete. Atop it all, merely the risk of future attacks will keep prices high.
The only solution is to stop the war or, failing that, capture and open Hormuz. However, this week, Washington began to destroy Iran’s gigantic Kharg Island oil complex and port, which exports 90% of Iran’s oil. It also threatens to seize or destroy its oil facilities there, which would require boots on the ground. But every bomb helps the military war, not the oil war, because each removes oil production from the market and increases prices. To counteract that, allies have also begun to free up strategic supplies of oil.
“But even the release of 400 million barrels of reserves announced recently didn’t really put a dent in the oil price, which is still up [at] around $100 a barrel,” said Colin Walker, transport lead at the Energy and Climate Intelligence Unit (ECIU) think tank.
Last week, the US shot itself in the foot by deciding to increase the amount of available oil by removing sanctions on Russian oil exports until April 12. This is irrational. The amount of oil involved won’t move the dial, and, given exorbitant oil prices already, the immediate result will be that Russian oil exports by volume are expected to double in the short term, earning it an estimated $18 billion a month. This provides more money for its war in Ukraine and more time to drag out peace talks. US Treasury Secretary Scott Bessent said the “short-term measure” was aimed at promoting “stability in global energy markets.”
But the announcement accomplished nothing. Oil prices continued to hover around $100 (£75) a barrel, and stock markets outside the US fell. European Commission President Ursula von der Leyen and other leaders said now was not the time to relax sanctions against Russia.
Bluntly speaking, it was not only stupid but suspicious.
Scrapping sanctions was suggested by Russian President Vladimir Putin in a private call with Trump, and a secret meeting was held a day or two later between Putin’s Kirill Dmitriev and Trump’s negotiating team, Steve Witkoff and son-in-law Jared Kushner, to discuss details and duration. This manipulation makes Russia, temporarily, the only winner in the oil war, and removing sanctions won’t lower prices. Worse, Trump didn’t obtain a promise in return from Putin to convince its ally Iran to stop fighting.
China is a casualty. Beijing buys half its oil from Iran and must find replacements at higher prices as it wrestles with domestic issues. It has been diplomatically muted because of its tariff truce with Trump and because its President, Xi Jinping, is hosting a summit with Trump from March 31 to April 2 in Beijing. Thus far, China has condemned the US-Israeli strikes on Iran, but avoided confrontation with Washington. And Trump has portrayed the war as essential to keep the Strait of Hormuz clear for oil traffic and is ultimately helpful to Beijing.
“We’re really helping China here,” Trump claimed.
Iran wins the oil war with its Hormuz gambit, upsetting voters and forcing Trump to ask for help: “Hopefully China, France, Japan, South Korea, the UK, and others, that are affected by this artificial constraint, will send ships to the area so that the Hormuz Strait will no longer be a threat by a Nation that has been totally decapitated.”
That is unlikely because, as one pundit suggested, they don’t trust him.
He is responsible for this debacle, which was avoidable. It occurred because an inexperienced President and his Secretary of Defense, Pete Hegseth, didn’t understand the oil business and also mistook Iran for Venezuela. That regime change was a cake-walk invasion and took hours because it’s a third-world banana republic without a large military.
Fresh from that triumph, the US went after peanut-sized Cuba by stopping all Venezuelan and Mexican oil shipments to the island-nation. Now, it’s enmeshed in a war against a vile and heavily armed regime that may last years because its people cannot revolt, and its leaders will play the “long game.” This week, the Ayatollah rejected a request by Trump for ceasefire talks.
“This war has gone out of his [Trump’s] control. It’s longer, messier, and is exacting a cost from the US – in terms of damage to its military in the region, but also to energy markets and the global economy,” Iranian-American scholar Vali Nasr told Bloomberg.
It is also counterproductive, he added. “There is still a huge amount of anger and dislike of the regime. Nobody wants to live under a theocracy or economic isolation. The country’s under attack. Iranians are fighting for their survival. The city of Tehran is under acid rain. People are dying. Lives are being destroyed. There’s a new political line opening up: Are you for war or are you against war? As opposed to: Are you for the regime or against the regime?” Increasingly, anti-regime Iranians are saying: At this particular moment, it’s not the time to have our internal fight over politics, but to support the country. If [Trump] was looking for a quick political uprising in Iran, it won’t happen until the dust of this war settles.”
Trump may have crushed Tehran’s military, but he loses the oil war. High oil prices may line the pockets of some insiders, Moscow, and oil giants, but the world’s consumers reel, and companies will begin to shutter operations. A few countries may already be in recession. Others may go bust. Pump prices are unaffordable, and the cost of everything is rising. But Trump preens and claims America has won the shooting war and even the oil war: “The United States is the largest oil producer in the world, by far, so when oil prices go up, we make a lot of money.”
Reprinted from [email protected] – Diane Francis on America and the World.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.
