Oil prices drop after Trump signals sanctions relief
Brent swings from near $120 to about $92 as Hormuz risk is priced through policy statements, insurers and banks set the constraint
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The US president, Donald Trump, has tried to play down the remarkable jump in oil prices, saying they had risen ‘probably less than I thought they’d go up’. Photograph: Mark Schiefelbein/AP
theguardian.com
Brent crude swung from a spike near $120 a barrel to about $92 within a day after President Donald Trump told CBS the US-Israel war on Iran could end “very soon” and described the operation as “very complete,” The Guardian reports. The reversal came even as Iranian state media quoted a Revolutionary Guards spokesperson saying Tehran would not allow “one litre of oil” to be exported from the region if attacks continued. Markets traded the statements, not the barrels.
The episode underlined how oil pricing in this conflict is being set by the probability of state decisions rather than by physical capacity alone. A fifth of global oil and seaborne gas typically transits the Strait of Hormuz; in recent days shipping has slowed sharply as insurers and financiers price the route as if it were closed. When that happens, the marginal constraint is not the number of tankers available but whether they can obtain war-risk cover, bank documentation and an acceptable premium. A single announcement about naval escorts or sanction waivers can shift that constraint—and therefore the price—faster than any change in production.
Trump’s comments included a threat that if Iran interfered with Hormuz flows it would be hit “twenty times harder,” alongside a suggestion Washington would waive some oil-related sanctions “until the strait is up,” according to The Guardian. The latter remark, delivered after a call with Vladimir Putin, implied that supply could be increased by political permission rather than by new drilling. For traders, that is a form of optionality: the US can tighten or loosen sanctions, offer escorts, or backstop insurance, each move effectively writing a new contract on future supply.
Governments have begun responding as if the market’s price signal is a political problem. The Guardian notes fuel price caps have been imposed in countries including Croatia, Hungary, South Korea and Thailand, while the Philippines ordered public officials to cut air-conditioning use and travel. Those measures reduce visible pump prices, but they do not reduce the cost of moving oil through a war zone; they mainly shift who pays and when.
Brent did not fall because the Strait of Hormuz reopened. It fell because traders recalculated how far governments might go to keep it functioning.
On Monday oil traded above $119. By Tuesday it was near $92, after a single interview and a set of social media posts.