US-Iran War: Energy Markets Caught in the Crossfire

The ongoing war between the US and Iran is having a significant impact on global energy markets. The two countries are engaged in a game of cat and mouse, trying to sway global energy prices in their favor. The US is seeking to lower oil prices, while Iran is trying to keep them high.

U.S. President Donald Trump has noted the importance of keeping oil reserves at a certain level, stating that 'We run out of [oil] reserves at about four weeks'. Vice President JD Vance has also emphasized the need to keep oil and gas prices cheap for Americans. However, this goal may be at odds with preventing Iran from acquiring nuclear weapons.

The energy markets have proven unpredictable, despite disruptions caused by the war. The price of Brent crude has risen from below $75 before the war to peaks above $130. This is a significant increase, but adjusted for inflation, it is not as high as previous spikes.

One reason for this resilience is the existence of buffers that have kept the markets from careening out of control. These include an initial oil surplus when the war began, increased production in some countries, and new workarounds to send oil through Hormuz despite Iran's attacks.

However, surging diesel and fuel prices may now matter more than crude oil alone. U.S. retail diesel prices are soaring to record highs, generating support for a 90-day U.S. diesel export ban. This could have significant consequences for the US economy and its ability to continue waging war.

The question remains whether the US or Iran will outlast the other in what has become an endurance test. The Houthis have moved into Bab al-Mandab, positioning themselves to threaten shipping in the Red Sea, a major energy corridor. Meanwhile, efforts are underway to keep raising the outflow of crude through the Strait of Hormuz.