Trump Thinks He Can Magically Control the Price of Oil
Amid the deadly, illegal, half-baked war the U.S. and Israeli governments are waging against Iran, Donald Trump has managed to stick to his morning routine of shouting nonsense on social media. At 7:23 a.m. on Monday, Trump announced on Truth Social that the United States had engaged in “VERY GOOD AND PRODUCTIVE CONVERSATIONS” with Iranian negotiators “REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.” The administration was sufficiently satisfied with the progress of those talks, he added, that it would postpone for five days—i.e., until markets close at the end of the week—the military strikes on Iranian power plants and energy infrastructure that he’d promised the previous night. Brent and West Texas Intermediate Crude oil futures promptly plummeted. The Dow Jones Industrial Average and S&P 500 accordingly posted their biggest one-day gains since February. Iran’s Foreign Ministry denied that the conversations Trump boasted about ever happened—but not before the oil traders who’d that morning placed $580 million worth of bets on oil futures dropping got a lot richer.
“The price of oil will drop like a rock as soon as a deal is done. I guess it already is today. We have a very serious chance of making a deal. That doesn’t guarantee anything,” Trump mused a few hours later, while talking to reporters. “All I’m saying is we are in the throes of a real possibility of making a deal. And I think if I were a betting man, I’d bet for it.”
Despite the president’s long-running fixation on oil—in the 1980s, Trump mulled drilling for it in Manhattan—his understanding of the industry has historically been a characteristically simplistic one: price down—good, price up—bad. He does seem to have figured out that well-timed statements can influence whether that price goes up or down; some unusually prescient oil traders got a lot richer this week as a result. But are Trump’s attempts to change the price of oil good for anyone who isn’t a betting man?
Oil isn’t cryptocurrency, or the stock market. It is a material thing that needs to be drilled, transported, stored, refined, sold, and delivered, all at considerable cost, all over the world. In fact, it’s many things: Different grades of crude have to be processed in different facilities, into different products. Benchmark prices and futures—somewhat recent phenomena—should ostensibly enable global oil market participants around the world to manage risks, and respond to events that might impact investment and purchasing decisions. Trying to rig oil markets like a casino’s slot machine makes the information those numbers are supposed to provide less useful, warping perceptions of how much barrels actually cost and what that entails for the broader economy. It could also be making it easier to ignore potentially cataclysmic levels of disruption.
The disjuncture between “paper” crude prices and realities on the ground has many experts worried. “The market is trying to grind higher because the role of this market is to anticipate and look forward to what’s coming,” said oil market researcher Rory Johnston, author of the Commodity Context newsletter. But “anytime prices get very high at all—much higher than $100 or $110 per barrel—we see pretty concerted efforts in the White House to jawbone the price lower.” The result is an “ever-larger dislocation between future markets trying to handicap risk and physical markets, particularly in the Gulf region, reflecting this deep, deep tightness.”
At CERAWeek—the annual global energy confab hosted by S&P Global—Chevron CEO Mike Wirth similarly noted that the market is trading on “scant information,” with prices that likely don’t reflect the actual physical shortages that mount every day as ships are unable to pass through the Strait of Hormuz. “We got a lot of oil and gas now that is not flowing into the market,” he said. “There really is a difference in terms of physical supply this time versus prior incidents.”
Wirth is underselling the enormity of this situation here. Market analysts have long considered the closure of the Strait of Hormuz—a closure Iran enforced in reaction to the U.S. and Israel’s illegal war—a remote worst-case scenario. One-third of the world’s traded crude oil flows through that narrow passageway, along with a fifth of traded liquefied natural gas, or LNG; one-third of fertilizers; two-fifths of helium; and nearly one-half of sulfur. The Gulf’s abundant supplies of oil and gas are used to create feedstocks for a range of refined products that are critical to everything from food production to data centers. Upward of 15 million barrels of crude oil are being kept out of export markets each day the Strait of Hormuz remains closed, bringing the total so far to roughly 345 million barrels. As Gulf producers run out of storage for trapped oil, they’ll need to continue “shutting in” wells, i.e., stopping production at specific sites. It will likely take months to get those operations—now accounting for around 9.5 million lost barrels per day—back up and running after the strait opens. Even if the war does end relatively soon, traffic through it might never return to normal.
The Trump administration wasn’t really thinking about all that when it joined Israel in attacking a country four times the size of Iraq, according to reporting by CNN, and has been surprised by the scale of Iran’s escalation. “Planning around preventing this exact scenario—impossible as it has long seemed—has been a bedrock principle of U.S. national security policy for decades,” a former U.S. official, who served in Republican and Democratic administrations, told the outlet. “I’m dumbfounded.”
The White House, which denied CNN’s reporting, appeared to believe that the U.S. and Israel could bomb Iran, kill Ali Khamenei, and somehow give rise to a new group of leaders that would seek an accommodation, à la Venezuela’s Delcy Rodríguez. “That belief was based on a very limited understanding of the Islamic Republic,” said Gregory Brew, a senior analyst at the Eurasia Group. “And it didn’t matter because the individuals they thought they’d be working with were killed.” What began as a war for regime change is now a war about restoring trade flows in the Strait of Hormuz. “They’ve created their own problem,” Brew said.
Despite Energy Secretary Chris Wright’s claims this week that U.S. oil producers are patriotically “rallying to the cause” of U.S. interventionism and lower gas prices, top executives have criticized the administration’s approach, and are weary of boosting production too quickly under such volatile conditions. “In the quarter ahead, all pricing is uncertain until safe navigation through the Strait of Hormuz can be achieved. I would think any short- or long-term planning has been put on hold for the next two to three months,” one executive reported to the Dallas Fed’s quarterly Energy Survey, released on Wednesday. Ramping up domestic oil production, moreover, won’t necessarily bring down prices at the pump here—particularly in the short term.
For their parts, Trump and his acolytes have been trying to downplay the importance of both higher gas prices and the biggest upset to the global economy since Covid-19. “We’re going through a short-term period of disruption right now, but the long-term benefits will be enormous,” Wright told CNBC this week. “You have got to get through a few weeks of disruption, and we’re doing everything we can to mitigate those disruptions.” Trump has pointed to the lower price of West Texas Intermediate crude, or WTI, as proof of their strategic success. “We will do whatever is necessary to keep the price as low,” he said last Thursday in the Oval Office. “I actually thought when I did this … I thought it would be worse.”
But which prices matter? Bloomberg’s Javier Blas pointed out that the price of WTI—while important to Wall Street, and to Trump—is far less important to ordinary consumers than the bundle of products produced from crude oil, like diesel, jet fuel, and gasoline. “Those are all individual commodity markets,” Johnston told me. “Refineries refine a barrel of crude oil into a cocktail of those products. It can change which crudes it will refine. It can change the yields. But, as a general rule, a refinery can’t turn one barrel of oil into one barrel of gasoline.” Blas writes, “While the price of Texas crude is up 60 percent since January, the cost of key everyday fuels has risen by between 85 percent and 120 percent.”
While higher prices at the pump are certainly a concern for drivers in the U.S. and their elected officials, poorer countries that depend on fuel imports are likely to face real, painful supply constraints, losing out on increasingly costly bids for tankers to wealthier buyers in the U.S., Europe, and East Asia. As a result, oil import–dependent nations have adopted creative measures like mandating four-day workweeks and imposing penalties on gas-powered cars. “If you can’t afford higher prices, you can’t incentivize that gasoline tanker floating around at sea into your country,” Johnston says. “Even if you are the person who is wealthy and can afford it, there will not be any gas in the gas station because the gas station was not able to justify purchasing those supplies.”
If turmoil at the Strait of Hormuz persists, the World Food Program estimates that an additional 45 million people could face acute food insecurity this year, as aid supply chains are snarled and poorer countries become unable to import and produce fertilizers ahead of key planting seasons for staple crops like rice.
Shanaka Anslem Perera writes that four of Bangladesh’s five urea factories have been shut down as a result of government-ordered gas rationing, imposed after Qatar began halting gas exports. Attacks in that country have shuttered 17 percent of the world’s LNG capacity, as well as the largest single-site urea exporter on the planet. “The shutdown,” he adds, “coincides with Boro rice season, which accounts for more than half of Bangladesh’s approximately 40 million tonne annual grain output. Current stockpiles of roughly 468,000 to 525,000 tonnes provide a buffer measured in weeks, not months.”
The wide-ranging human costs of this war apparently haven’t registered with the White House. Pentagon officials seem to be ordering missile strikes with about as much care as they invest in summoning a burrito from Uber Eats; those tracking their macros may well spend more time deliberating between chicken and carnitas than they do considering whether a direct hit will kill 10, 20, or 150 civilians. At least 1,500 people are believed to have been killed in Iran so far.
Trump would much rather talk about gas prices than the 13 U.S. soldiers who’ve died in his pointless war, or the more than 324 children killed across Iran and Lebanon. Discussions about fuel costs, supply chains, and futures markets matter because millions of lives and livelihoods depend on them. They shouldn’t distract attention away—as the president might hope—from the thousands being starved, maimed, impoverished, and killed because of a nihilistic war of aggression waged by leaders who couldn’t care less.