Dem
47
GOP
53
The Trump administration is not exactly known for, you know, competence. But even by the low standards that have been set over the past decade, it's really and truly staggering how amateurish this Iran operation has been, and will continue to be.
The latest mind-boggling news comes courtesy of The Wall Street Journal (sorry, subscription needed). Secretary of State Marco Rubio, Secretary of Defense Pete Hegseth, et al., definitely had an inkling that maybe, just maybe, a war in Iran might cause disruptions in the global oil market. And so, as everyone now knows, they cooked up a plan: The U.S. would fund insurance for oil tankers, in case anything went wrong while making a mad dash across the Strait of Hormuz.
The only problem here is that nobody in the administration bothered to check with anyone in the actual shipping industry. It turns out that the petroleum companies don't particularly want to take the risk that one of their ships gets sunk since, even if they are covered by insurance, it will take months or years to recoup the funds, while at the same time dealing with a potential PR crisis (think: Exxon Valdez). Meanwhile the companies that provide maritime insurance aren't keen on issuing contracts for trips across a body of water that is in range of hostile missiles, and that could be (and now is) mined.
Once it became clear that Plan A was not going to fly, someone in the White House hastily put together Plan B, which was for the U.S. government to effectively act as insurer. However, nobody in the administration quite knew how that actually works in situations like this. So, a number of somewhat desperate calls were made to insurers in London, most obviously Lloyd's of London, which is famous for insuring anything and everything. As it turns out, the good people at Lloyd's were not interested in sharing their trade secrets for free, other than the not-so-secret insight that this cannot be made to work, under current circumstances.
So then it was on to Plan C, which may have been in someone's back pocket, or may also have been hastily put together. Plan C, which has already been executed, was for the United States and the other 31 members of the International Energy Agency to release a sizable chunk of their strategic reserves into the market, ostensibly making up for the shortages caused by the Iran War. The total amount of oil that will be released is 400 million barrels, of which about 150 million barrels are already in the process of being shipped.
On paper, this might appear to buy the White House a little breathing room. It's estimated that the amount of oil that is being held up by the Iran War is about 15 million barrels a day. So, the 400 million barrels is enough to cover a little less than a month of shortages. In practice, however, it does not seem to have worked. Here's the chart of oil prices per barrel, over the past month:
As you can see, the price per barrel effectively doubled between March 1 and March 9. It settled down a little in the last couple of days, but only a little, and is still flirting with $100/barrel. The average price of a gallon of gas a month ago was $2.94. Yesterday, it was $3.60. Think people might notice that they're suddenly paying $5-$40 more when they fill up their gas tanks?
With the caveat that we are most certainly not experts in oil contracts, we wonder if the release of all of those reserves was actually counterproductive. As we have noted several times recently, petroleum is very much a futures market, with a lot of the big players making their purchases 6 months in advance, so as to lock in their costs. Things have not been quite as volatile as when Russia invaded Ukraine, and the explanation that most analysts give for that is that everyone who buys oil was guessing (hoping?) Trump would TACO, and this would just be a brief disruption. Tapping the strategic oil reserves not only suggests this war could go on for a while, it also means that one of the biggest and most "break glass in case of emergency" options is gone, because the glass has already been broken.
Speaking of Russia, the fact that Plan C clearly did not have the desired effect caused the Trump administration to announce Plan D: It's going to temporarily lift the sanctions on some Russian oil. The U.S. doesn't need the Russian oil, but other nations might. Whether the leaders of those nations are interested in playing ball remains to be seen; the political hit that could come from doing business with Vladimir Putin might not be worth it to them. Meanwhile, Trump and his team are apparently comfortable with compounding their errors in Iran creating some badly needed cash flow for Putin. To many people, that might seem like robbing Peter to pay Paul. On the other hand, if a person happened to be, say, a puppet of Putin, maybe it would not seem that way at all.
We'll soon know if the Russia gambit will work, and if oil prices will settle down. But don't count on that happening. At this point, Big Oil is very leery, and is going to remain so until there's a good answer to what's going to happen with the Strait of Hormuz. If the White House had a good answer, they would already have provided it. We very seriously doubt that Plan E, if some other possibility even exists, will somehow be more efficacious than Plans A. B. C and D were.
And even if the administration does get the petroleum flowing soon, at least some amount of damage has already been done. Recall how long it took to get supply chains operating properly again as the world emerged from the pandemic. Well, the oil supply chain is long and complex and is already seriously disrupted. So, the current forecast is that oil will stay at or near $100/barrel for at least a couple of months, then will be around $80/barrel during the summer, and then $70/barrel in the fall (a.k.a. election time). And this is actually something of a TACO forecast that assumes that the economic upheaval will cause Trump to pull the trigger on the Iran War sooner rather than later. If he doesn't do it, then oil could very well stay at $100/barrel (or go higher) in the latter part of 2026.
And remember, there are oil consumers who are making their purchases right now, and who will be locked in at current prices no matter what happens in a week, or a month. Airlines, for example, are right now securing the fuel that will power their summer vacation season flights. To take another example, substantial portions of the components that make up modern fertilizer come from the Middle East and move through the Strait of Hormuz. The price of various fertilizers has already shot up from $400/ton last year to between $500/ton and $600/ton right now. And farmers can't plant their crops now and fertilize them later, so they're largely stuck with the high prices for their 2026 growing season. Wonder if the roughly 78% of people in the farming business who voted for Trump are beginning to have second thoughts? (Z)