By Zack Colman, Ben Lefebvre
President Donald Trump’s attempts to calm the energy markets over the war in Iran are falling short — and experts say the pain at the pump is about to get much worse.
Trump’s announcement late Wednesday that the U.S. would escalate military action in Iran for several weeks longer than expected — and effectively abdicate responsibility responsibility to keep the region’s key trade thoroughfare open for unfettered shipping — is already rattling the global economy and will soon manifest itself to U.S. voters, analysts said.
U.S. oil futures jumped firmly over $110 a barrel Thursday after holding near $100 amid the administration’s efforts to tamp down crude prices. The energy shock outside the U.S. is worse: the global benchmark price for real-world Brent crude hit $140, the highest level since 2008. The White House has started to consider the possibility that crude could reach $150-200.
Oil traders who had given Trump the benefit of the doubt that he could quickly wind down the war that has halved Middle East energy exports are now pricing in a longer conflict…
…The uncertainty around the war’s duration and Trump’s call for other nations to secure the Strait of Hormuz will likely raise costs for the large volumes of oil, fertilizer and other commodities that news reports indicate are subject to tolls payable to Tehran for safe passage through the waterway.
“This kind of problem in the immediate term causes a price spike,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University’s School of Professional Studies. “Depending on how long it lasts and what the ripple effects are, over time, the economy goes into a recession. And that will bring the price of oil down like a stone.”
Trump dismissed the economic consequences, saying the U.S. can absorb the shocks because of its world-leading oil output. But key buffers that insulated Americans from sizable price spikes have evaporated over five weeks of war.
“The physical impacts of the closure are going to start showing up around the world,” said Sam Ori, executive director of the Energy Policy Institute at the University of Chicago. “It’s not accurate to say that we have our own oil and gas and that we don’t really care about the Strait of Hormuz. That’s not how oil markets work. That’s not how the global economy works.”