‘One way or the other’: Trump’s threats send oil prices surging

The surge means oil prices climbed sharply again, from below $US100 a barrel last month to just under $US117 last week. The article links much of that rise to fears that renewed fighting could disrupt Middle Eastern supplies. Prices therefore reflect expected risk, not only oil currently moving through the market.

Futures contracts price oil for delivery at a later date. Traders use them to anticipate future supply, demand, and conflict. Dated Brent is different. It covers physical oil delivered in the near term. Normally, it trades less than $US2 above the futures price. Late last week, however, Dated Brent reached about $US125 a barrel.

That unusually large gap suggested buyers wanted oil immediately, before possible violence returned. Futures prices were also rising because traders expected renewed conflict to damage future supplies. The article says futures pricing suggested oil could remain above $US100 well into next year. Both markets were therefore pricing in disruption, but at different delivery times.

The Strait of Hormuz is the maritime passage discussed in the article through which Middle Eastern oil tankers travel. It connects the region’s oil producers with buyers elsewhere. Its importance comes from the volume of trade using one narrow route and from the difficulty of replacing that route quickly during conflict.

The article describes tankers being escorted through the strait by the US navy. Some vessels also appear to be paying Iranian fees for safe passage. Other ships shuttle into and out of the strait, then transfer their cargoes to tankers waiting outside. These arrangements show how central, but dangerous, the route has become.

Attacks have continued despite oil flows recovering close to pre-war levels. UKMTO reported 11 confirmed attacks in one week, while other authorities counted at least 28 incidents that month. Because many targeted ships do not report attacks, the actual number may be higher. The route’s security therefore remains a major price risk.

The article does not state how many barrels normally pass through the Strait of Hormuz each day. It only says Middle Eastern shipments have returned to something close to pre-war levels. It also says oil flows through the strait and Saudi Arabia’s Red Sea pipeline have rebounded despite attacks.

As broader established context, the strait is commonly estimated to carry roughly one-fifth of the world’s petroleum supply. That figure is not provided by this article, so it should be treated as outside context rather than an article statistic. The article’s main comparison is relative: recent flows are near the earlier baseline, not far below it.

This matters because supply volume alone does not explain the price surge. Tanker costs, insurance, wages, delays, and fears of renewed attacks have all increased. Even with near-normal shipments, getting oil to buyers has become more expensive and risky. Traders are also pricing in the possibility that flows could fall later.

Oil prices reflect more than the number of barrels reaching the market. They also reflect the cost, time, and risk of delivering those barrels. The article says tanker chartering through the strait costs about 12 times more than before the war, while cargo insurance costs more than three times as much.

The transport process has become unusually inefficient. Ships shuttle into and out of the strait and transfer cargoes to other tankers waiting outside. That takes longer and ties up extra vessels. The result is a shortage of available tanker capacity, even though the world is not necessarily short of tankers overall. Crews and captains also demand much higher pay for the danger.

Traders are additionally preparing for a possible new conflict. Dated Brent rose to about $US125, suggesting urgency among buyers seeking prompt deliveries. Futures prices rose because renewed fighting could disrupt future Middle Eastern supplies. Thus, near-normal current flows can coexist with sharply higher prices when delivery becomes costly and uncertain.

Higher operating costs make each oil shipment more expensive. The article says chartering a tanker through the strait costs about 12 times its pre-war level. Insurance costs more than three times as much. These increases raise the delivered price of oil, even when the physical supply of crude remains close to normal.

Risk also changes how ships and crews are used. Captains earn nearly six times their former pay, with bonuses worth tens of thousands of dollars. Crews receive two or three times their old salaries. Ships now shuttle through the strait and transfer cargo to vessels waiting outside. Those extra steps consume time and keep more tankers occupied.

This creates a shortage of tanker capacity rather than a shortage of ships. Fewer vessels remain available for other oil movements because the Middle East trade takes longer and requires more ships. The article says this capacity squeeze adds to both cost and delay. If attacks continue, those constraints could keep prices elevated even with steady oil flows.

Donald Trump’s threats affect oil prices by changing expectations about future supply. He had paused attacks on Iran, but his rhetoric hardened shortly before the US midterm elections. He said a decision was coming soon and described the choice as either finishing the conflict or making a deal. Traders treated that uncertainty as a warning.

The article says the US was moving diplomats and military staff out of the region while sending more military resources to the Middle East. Iran had vowed to retaliate if US attacks resumed. Those preparations and threats made renewed hostilities appear possible. Futures markets responded by pricing in the risk that Middle Eastern oil flows could be disrupted.

Near-term buyers reacted too. Dated Brent reached about $US125 a barrel, far above its usual premium over futures prices. That suggested buyers wanted physical oil before violence returned. The article says traders appear to believe there is a significant chance the war will flare up and materially affect supplies through the strait and Saudi pipeline.

Crude oil must be processed into products such as gasoline and diesel before drivers can use it. That means fuel prices depend on both crude supply and the capacity to refine it. If refineries are too limited, damaged, poorly supplied, or unable to produce the needed products, crude can continue flowing while pump prices remain high.

The article does not provide a detailed refinery analysis. It does report that gasoline prices were still 40 per cent higher than a year earlier and diesel prices about 74 per cent higher. Trump had tried several measures to lower US fuel prices, including releasing strategic diesel reserves and allowing tax-exempt diesel to be used on public roads.

Those efforts had produced no material effect, according to the article. It also mentions a controversial deal to import Russian diesel into the US. The broader implication is that crude reaching markets does not guarantee enough refined fuel at affordable prices. Refining bottlenecks, product shortages, transport risks, and conflict expectations can all keep fuel prices elevated.