Oil Jumps as Trump Threatens War Escalation Over Coming Weeks
(Bloomberg) -- Oil surged after President Donald Trump vowed an escalation to the war in Iran over coming weeks, damping hopes of a swift resolution and prolonging disruptions to energy flows through the vital Strait of Hormuz.
Brent climbed above $107 a barrel and West Texas Intermediate was near $105 following Trump’s rare prime-time address to the nation, where he cast the war as a success. The president said the US would hit Iran “extremely hard” over the next two to three weeks, and that Hormuz would open “naturally” after the conflict ends, without offering details or a clear timeline.
“Nothing in Trump’s speech alters the underlying market reality: the strait has effectively been closed for a month, and flows remain materially constrained with at least several weeks of disruption still likely, if not more,” said Robert Rennie, head of commodity research at Westpac Banking Corp. Brent is expected to trade between $95 and $110 a barrel in the near term, he added.
Oil fell in recent days, while wider markets rallied, after Trump signaled a possible resolution to the Middle East conflict within weeks, but his speech from the White House injected further uncertainty about an end to war. The US president again threatened attacks on Iranian oil facilities.
The conflict has effectively closed the Strait of Hormuz, choking off supplies of crude, gas and products such as diesel to global markets, driving up energy prices and raising fears of an inflation crisis. Oil posted big monthly gains in March and Brent is still more than 40% higher than before the war.
The standoff over Hormuz is the most pressing issue for energy markets. On Monday, Trump said the US will blow up Iranian infrastructure including power plants if the strait doesn’t re-open, but on Tuesday, he called on other nations to wrest control of the waterway. The United Arab Emirates is among Gulf nations calling on the United Nations to authorize force to re-open it.
Iran and Oman will decide the future of the strait, Iran’s Foreign Minister Abbas Araghchi said on Wednesday, state-run Press TV reported. Hormuz won’t be opened based on the “absurd displays” of the US president, state-run IRIB added, citing a statement by the Islamic Revolutionary Guard Corps.
Trump said in his address from the White House late Wednesday that the war is “very close” to completion, but added military operations will soon escalate in Iran. He stated that “over the next two to three weeks, we’re going to bring them back to the stone ages where they belong.” The president said countries that get oil via Hormuz should take the lead in protecting shipments.
“The president’s characteristic ambiguity leaves multiple military options open in the near term, even as it sketches a relatively short timeline for US involvement,” said Claudio Galimberti, Houston-based chief economist at Rystad Energy. “Until there is greater clarity on the path to de-escalation, markets are likely to remain highly volatile.”
Even if the conflict was to end within a few weeks, it would still take time for normal flows to resume through Hormuz, while some energy infrastructure has been damaged and is facing lengthy repairs. The International Energy Agency Executive Director Fatih Birol warned that energy rationing may be coming soon to some countries as the oil supply shock deepens this month.
Trump has vacillated throughout the conflict — which is nearing its sixth week — between threatening a military escalation and saying a deal is imminent. He has dispatched Vice President JD Vance to deliver an ultimatum to Iran to make a deal or face attacks on key infrastructure.
Iran’s military is “prepared for any scenario,” the Iranian Students’ News Agency reported, citing Foreign Ministry Spokesman Esmail Baghaei. He added that US demands are “maximalist and illogical.”
Investors are piling into options contracts that would allow them to profit from nearly any outcome, whether it’s a quick resolution dragging crude lower, or a further spike. There have been a smattering of lottery ticket-type bets that the global oil benchmark could rally to $450 a barrel.
“This spike is a physiological reset for a complacent market,” said Stefano Grasso, senior portfolio manager for Enhanced Value Fund at 8VantEdge Pte. He added that the fund has “taken the rare step of buying protection and adding energy length. The risk-reward is now too compelling to ignore.”
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