Iran’s decision to close the strait to oil tanker traffic has caused severe economic damage to some countries that rely on Middle Eastern crude, and it has led prices to surge around the world — including the United States. So why would Trump want to blockade the strait that he wants reopened?
The strait isn’t technically closed — Iran has been gradually allowing some tankers through in exchange for a toll of up to $2 million per ship. And, crucially, Iran has been allowing its own oil to pass in and out of the region throughout the war: Iran had managed to export an average of 1.85 million barrels of crude a day through March — about 100,000 barrels a day more than in the previous three months, according to data and analytics firm Kpler.
By closing off the strait, Trump could cut off a key source of financing for Iran’s government and military operations. It’s a lever the administration has been unwilling to pull: Blockade the strait — even to Iranian oil, and the price of oil could surge around the globe. That’s why the US Navy has allowed Iranian tankers to pass through the region. Any oil flowing out of the region right now could help keep oil prices at least somewhat in check.
In fact, the United States in March granted a temporary license for Iran to sell oil that had been sitting afloat on tankers.The United States has sanctioned Iranian oil on and off for decades, and the Trump administration has blocked sales of the country’s crude since it abandoned the Iran nuclear agreement in 2018. Trump’s decision to drop sanctions last month freed up a lot of crude: 140 million barrels worth, which is enough to satisfy the entire world’s oil demand for about one-and-a-half days, according to the US Energy Information Administration.
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Anger about surging gas prices pressured the Trump administration to wrap up its war, and releasing hundreds of millions of barrels perhaps bought it a bit of time. Because Iran was selling its oil anyway, dropping the sanctions opened up the oil sales to Western countries instead of going exclusively to China, Iran’s biggest customer by far.
The administration has tried to find any lever it can pull to keep oil prices in check while it wages its war. It coordinated a historic release of emergency oil reserves around the globe, and the Trump administration desanctioned hundreds of millions of barrels of Russian oil last month, as well. Now, Trump is risking sending oil and gas prices even higher to maximize leverage over Iran to end the war.
The chances of this actually working in any way is almost nil. And if he orders an attack on Chinese or Indian or any other vessels, the war has gone worldwide and we are in deep shit. In other words, Trump’s folly is just getting worse and worse as he desperately tries to find a way out of the mess he’s made.
At the very least, get ready for a price shock like we haven’t seen since the 1970s. Buckle up.
*Just as an aside, I think sending JD over to fail at the talks was probably a savvy move by Marco Rubio who spent last evening with Trump at a UFC fight. Vance leaked to Haberman and Swan about how he opposed the war and I’m fairly sure Trump was made aware of that if he didn’t already know. Vance is currently under the bus being run over.