Slap-and-tickle routine in Hormuz may have brought China, France to heel on Iran

(Originally published May 7 in “What in the World“) Not so fast.

Oil prices fell and markets rallied on hopes Trump is close to restarting peace talks with Iran. But even if he manages to open the Strait of Hormuz tomorrow, which seems unlikely, experts say it will take weeks to resume normal shipments of oil. In the meantime, global supplies will continue to tighten. Reassessment of this reality helped drive Brent crude futures up nearly 1% early Thursday.

Trump said he “paused” Project Freedom, his naval escort service for ships stranded in the Gulf, after just one day after it prompted a flurry of Iranian attacks. Trump also apparently neglected to inform the Saudis, who responded by withdrawing permission for U.S. aircraft involved in it to land or take off in Saudi Arabia. It’s unclear just why the Saudis were opposed to Project Freedom, unless it was because it fell short of their support for full-on U.S. war to depose Iran’s regime.

Already, global oil reserves fell in April at a record pace of 6.6 million barrels, or 0.165%, a day, as roughly 1,600 oil tankers and other ships remain stuck in the Gulf. Normally, refiners and retailers build up their stockpiles this time of year to prepare for higher summer demand. They haven’t been able to do that this year.

Goldman Sachs said this week that it expects global oil inventories to fall by the end of this month to the equivalent of roughly 98 days of demand, down from 105 days at the end of February when the war began. Even if normal oil shipment resume at the end of May, according to Rystad Energy, 16-27% of pre-war oil stocks will have been depleted.

And oil tankers don’t move fast. The last tanker bound for California refineries to transit the Strait before the war erupted, for example, just arrived in Long Beach. Average U.S. prices for gasoline, meanwhile, have climbed 52% since the war began, to $4.54 a gallon ($1.20/liter), an increase that is higher proportionally on lower-income workers. Higher prices at the pump are likely being exacerbated by record U.S. exports of refined fuels to Asia and Europe.

Some analysts warn that Trump’s endgame isn’t merely to neutralize Iran’s nuclear ambitions, or to oust its fundamentalist regime, but rather to bring oil-hungry China to its knees and cement U.S. dominance over global energy supplies. So, the question of who will cry uncle first isn’t necessary between Tehran and the Republican Party as it stumps for votes from an inflation-weary electorate, but between U.S. consumers and Beijing.

As the standoff continues, the upcoming crunch in oil markets could do lasting harm to energy markets and economies. But with China now urging Tehran to help re-open the Strait, and France sending an aircraft carrier to the Middle East on top of the five Trump is positioning in the region, it does seem something is about to happen—and it won’t be subtle.