Oil's roller coaster ride

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President Donald Trump started the year seeking $50 per barrel of crude oil to make progress on bringing down the cost of living at home. A new war in the Middle East and the historic volatility it set off means he won’t be reaching that magic number anytime soon.

The U.S.-Israeli war against Iran has rippled through energy markets and sent oil prices rocketing upward since it began nearly two weeks ago. Commercial shipping and oil tanker traffic has plummeted in the Strait of Hormuz, a key waterway near Iran that handles around one-fifth of global natural gas shipments. 

Iran, meanwhile, lashed out by launching drone and missile attacks at critical energy facilities throughout the Persian Gulf.

Energy analysts and oil executives alike didn’t mince words on how the Iran war punched a hole in energy supplies. Amin Nasser, CEO of Saudi Arabia’s state owned-oil company Aramco, said in a Tuesday call with analysts that the war “unleashed the biggest crisis the region’s oil and gas industry has faced.”

Indeed, the conflict has sent oil prices on a wild roller coaster ride that carries little precedent. On Monday, the price of Brent crude briefly reached $119 due to fears that oil shipping was coming to a complete halt in the Strait of Hormuz. By the end of Tuesday, crude was trading at roughly $87 as investors pinned their hopes that Western governments will soon tap into their emergency oil supplies. 

Oil analysts recalled former President Biden’s move to tap into the Strategic Petroleum Reserve after Russia invaded Ukraine in February 2022. He drew down the emergency oil stockpile through much of the year, which kept gas prices from spiking out of control.

Upon entering office last year, Trump pledged that he planned to “refill our strategic reserves up again right to the top.” At one point in July, the president said he was waiting for oil prices to drop further so the U.S. would get a discount in resupplying its reserves.

Trump never refilled the stockpile. The SPR is only 60% full, according to February data from the Department of Energy.

Trump has few good options to limit price spikes at the gas pump, a lesson that Biden learned as his administration struggled with high prices heading into the 2022 midterms. The White House has since stated it will provide $20 billion in reinsurance coverage to tankers making the perilous journey through the Strait of Hormuz, and it’s exploring other options.

With no end to the war in sight, the volatility in oil markets is poised to continue. Part of that is attributable to the Trump administration’s inability so far to articulate a clear rationale for launching a pre-emptive war against Iran. Initially, it was said to be about promoting democracy and regime change. Other times, the U.S.’s mission has been described as stripping Iran of its ability to develop a nuclear weapon. 

There’s been contradictory messages on the planned length of the war and how the president will ultimately define victory. During a Monday press conference, Trump stated that the war with Iran was merely a “short-term excursion” that’s “already been won in many ways.”

It’s safe to say there hasn’t been a de-escalatory message coming out of the Pentagon. Defense Secretary Pete Hegseth said Tuesday represented the “most intense day of strikes inside Iran.”

Within Congress, there’s a mounting fear among Democrats that Trump will get the U.S. embroiled in a military fiasco beyond its control. 

“We seem to be on a path toward deploying American troops on the ground in Iran,” Sen. Richard Blumenthal of Connecticut said Tuesday after getting briefed on the latest Iran developments alongside members of the Senate Armed Services committee.

The lingering threat of escalation from both Iran and the U.S. all but ensures that volatility will continue and oil will trade at elevated prices for the foreseeable future. As analyst Jim Bianco of Bianco Research put it:  “Crude Oil has to be impossible to trade right now.”