The US administration's efforts to reassure global markets that oil prices would soon fall have quickly lost credibility. Repeated threats by US officials to launch a new war against Iran have undermined claims that Gulf oil exports could soon return to pre-February levels. Washington's agreement with Moscow to release around 300,000 metric tons of diesel onto global markets has also done little to calm concerns. Oil prices surpassed $117 a barrel just days ago. They could climb again if US escalation continues and gets out of control. That would expose the global economy to another inflation shock and potentially force the US Federal Reserve to raise interest rates again, deepening the economic slowdown and contraction. Why, then, have US officials' statements and threats had such a strong impact on oil prices this time? Just weeks ago, the problem was widely attributed to a shortage of crude supplies on global markets. Now, some shipping-monitoring agencies and US officials themselves say Gulf exports are returning to previous levels. Why has this change failed to bring prices down? An Industry in Ruins Nearly eight months after the war on Iran began, the oil industry remains far from its former state. The conflict has involved a series of escalatory measures, including attacks on oil facilities and ships. The sector will need considerable time to recover and resume normal operations. The damage extends beyond partially impaired production facilities and disrupted supply chains. Insurance and shipping costs have also surged for two main reasons. First, the risks have increased, with ships facing the threat of direct attacks or naval mines. Second, the number of oil tankers available has fallen sharply. Some vessels were damaged in attacks, while others left the conflict zone for safer markets. The market also faces a shortage of refined petroleum products. Refineries operating worldwide lack sufficient capacity to meet global demand. This has created a difficult equation for oil and fuel prices: high costs and rising demand on one side, and an unstable, insufficient supply on the other. Supplies could fall further at any moment if the war resumes or Yemen's Ansar Allah fully closes the Bab Al-Mandab Strait. Such a move would cut off the alternative route Saudi Arabia has spent recent months developing to export its oil. Rising demand is no longer driven solely by domestic consumption. Countries are also racing to replenish their strategic reserves. Declining global stockpiles have made markets more vulnerable to any new disruption in production or exports, leaving them with less capacity to absorb shocks. Most countries are therefore seeking to rebuild their reserves before winter and prepare for possible escalation. But several face difficulties, particularly record-high oil prices and dwindling supplies of refined products. The impact of US threats and the resulting rise in oil and fuel prices quickly reached the domestic market. US stocks fell as oil prices climbed, reflecting fears of renewed inflationary pressure and higher fuel costs. Who Benefits? In recent weeks, executives at trading companies and commercial institutions have focused increasingly on the future price of diesel rather than crude oil. Their main concern is the possibility of renewed military confrontation between Washington and Tehran, or an expansion of the conflict between Sanaa and Riyadh. The reason is the rising cost of refining and the limited availability of petroleum products. Otherwise, why would US President Donald Trump pressure refineries to lower fuel prices or ask Russian President Vladimir Putin to help by sending more Russian diesel to US markets? Bloomberg previously quoted analysts as saying that higher shipping costs, driven by fears of further instability in the Middle East, could raise the cost of delivering crude to refineries and squeeze their profit margins. In a recent analysis, the Financial Times also warned that a return to full-scale war would drive up prices for refined products such as gasoline and jet fuel, as well as the crude used to produce them. The newspaper quoted an executive at a major commodity trading company as saying: “If there’s a re-escalation we’re looking at diesel prices going to $250 a barrel — maybe even higher — depending on what happens and the damage.” Ole Hansen, head of commodity strategy at Saxo Bank, also noted that “the market is increasingly concerned that further attacks could damage production, processing or export infrastructure, creating disruptions that cannot easily be resolved by rerouting shipments.” The impact of US threats and the resulting rise in oil and fuel prices quickly reached the domestic market. US stocks fell as oil prices climbed, reflecting fears of renewed inflationary pressure and higher fuel costs. Shares in some energy companies, however, surged. Some analysts and economists offer two possible explanations for the administration's threats and their impact on prices, particularly with the midterm elections just two weeks away. The first is that the administration has failed to properly assess the consequences of its rhetoric. Markets already face several risks, including the potential impact of the confrontation between Sanaa and Riyadh on Saudi oil facilities, pipelines and refineries. The global oil industry is also struggling with a shortage of tankers and insufficient refining capacity, while oil tankers in the Gulf face near-daily incidents. The administration would normally be expected to ease tensions before an election to recover some of its expected losses or at least limit the damage. Its current approach would make little sense unless it had already concluded that it was certain to lose the vote. In that case, its behavior would be easier to understand. The second explanation focuses on who stands to benefit. Under this argument, major energy companies are the main beneficiaries of higher oil prices. Financial disclosures show that some have already recorded substantial profits during the current year. This raises questions about the influence of energy companies' commercial interests on US policy and their relationships with successive administrations. However, higher profits alone do not prove that such ties determine government decisions. When Washington and Tehran signed their memorandum of understanding in June, oil prices fell below $75 a barrel. They then began climbing again, reaching their highest level since 2008 just days ago. The reason was straightforward. Washington backed away from the understandings reached in the memorandum and returned to escalation, threats and sanctions. Yet as soon as reports emerged on Tuesday that US Vice President JD Vance had been in contact with Iranian officials, Brent crude futures for December delivery fell to around $114 a barrel. This is an edited translation of an article originally published in Arabic.
