Oil Markets' Faith in Trump Saves the Day Amid Iran Conflict

The oil market's response to the Iran war has been remarkable, but not for the reasons you might think. Despite the unprecedented closure of the Strait of Hormuz and the loss of a fifth of the world's oil and liquefied natural gas supplies, oil prices did not spiral out of control.

In fact, benchmark Brent crude surged from around $70 a barrel before the war to a peak of $118 in late March, but then slid back to $83 after Washington and Tehran announced a preliminary deal on Sunday. The physical market performed admirably, releasing hundreds of millions of barrels from commercial and strategic stockpiles.

However, the true reason for the oil market's resilience lies elsewhere. Traders and investors believed that US President Donald Trump would not allow the conflict to deteriorate into an economic crisis that would risk reigniting broader inflation, especially with midterm elections looming.

This phenomenon is known as the 'Trump put,' where markets discount extreme outcomes implied by his rhetoric and initial policy moves. The oil market's response to the drawdown in global inventories tells a different tale, despite plummeting stocks, confidence remained high that a deal was near.