Trump’s war, oil’s rules

Brent crude is trading above $108 a barrel despite a substantial recovery in shipments through the Strait of Hormuz, raising an increasingly awkward question for Donald Trump: why has the oil market stopped responding to his repeated assurances that peace is around the corner and prices will soon collapse? Could it be that traders are finally pricing the consequences of a war that Washington can no longer confidently promise to end?

For months, Trump’s repeated predictions of an imminent settlement appeared to exercise an almost monetary influence over energy prices. Traders had reason to believe he would eventually deliver.

After all, with midterm elections approaching and American motorists paying increasingly punishing fuel prices, surely the president had every incentive to prevent the conflict from becoming an economic liability. But incentives are useful only when they can be translated into outcomes, and the market now seems considerably less convinced that Trump possesses that ability.

Consider the contradiction confronting investors. Crude shipments through Hormuz have recovered substantially, yet Brent remains elevated, tanker insurance and chartering costs are punishing, and diesel supplies are under extraordinary strain.

The International Energy Agency warns that shortages could persist well into 2027, with the Middle East and Russia losing a combined 1.3 million barrels per day of diesel exports in September. If recovering oil flows cannot restore confidence, what exactly would a presidential promise achieve?

Perhaps the answer lies in the distinction between restoring supply and restoring security. Tankers may resume sailing, but their owners must still consider the possibility of another attack, another escalation or another sudden interruption. Refineries damaged during months of conflict cannot be repaired by diplomatic announcement.

Inventories depleted to keep markets supplied cannot be replenished overnight. The longer these disruptions persist, the more difficult it becomes for even a credible ceasefire to deliver immediate economic relief.

And this is where Trump’s original decision deserves rather more attention than the latest movements in oil futures.

Having followed Benjamin Netanyahu’s lead into war against Iran, did Washington seriously expect to control the economic consequences of a conflict involving one of the world’s most strategically important energy corridors? The assumption that military superiority would translate into a manageable geopolitical outcome looks increasingly questionable when the effects are now reaching Saudi oil facilities, international shipping, global refining capacity and American household budgets.

The renewed Houthi attacks on Saudi Arabia make the problem particularly revealing.

What began as a confrontation with Iran has widened into another dangerous exchange involving Yemen and Saudi Arabia, with energy infrastructure again exposed. These developments belong to the wider regional escalation unleashed by the war, even if individual actors have their own calculations. Could the administration have underestimated how readily the conflict would activate precisely the regional vulnerabilities that make Middle Eastern energy indispensable to the world economy?

The economic arithmetic is becoming increasingly unforgiving. American diesel prices have reached $6.50 a gallon, while diesel refining margins touched almost $95 a barrel in September.

Trump’s arrangements to restore some Russian diesel exports may provide limited relief, but the promised volume over three months amounts to roughly half a day’s global diesel consumption. There is something almost absurd about attempting to offset the consequences of a sprawling regional war through supply additions so modest that markets barely respond.

Meanwhile, the inflation problem is threatening to migrate well beyond energy. September’s US consumer price index rose 0.6 percent during the month, taking annual inflation to 3.7 percent, slightly above economists’ expectations.

The underlying concern is becoming increasingly difficult to dismiss. Persistently expensive fuel raises transport and production costs, complicating the Federal Reserve’s task just as employment growth begins to moderate.

That creates a rather uncomfortable policy dilemma. Markets assign only around a 20 percent probability to another Fed rate increase this month, while expecting further tightening later in the year.

Yet if the energy shock continues feeding into broader prices, how much freedom will the central bank really have to pause? And what becomes of economic growth if interest rates must remain restrictive because of inflationary pressures aggravated by a war whose duration remains beyond Washington’s control?

The IMF’s latest warning about the possibility of a disorderly rise in sovereign bond yields adds another dimension.

Public debt is already elevated, while governments and increasingly capital hungry technology companies compete for financing. Persistent inflation makes that competition more expensive.

The benchmark 10-year US Treasury yield remains above 5 percent, raising the prospect that an energy shock could continue transmitting through borrowing costs, asset valuations and government finances long after the initial disruption.

For energy importers such as Pakistan, the consequences are especially difficult to ignore. While crude shipments through Hormuz have recovered, LNG flows remain severely depressed, and damaged Qatari facilities face a lengthy recovery.

Wood Mackenzie, a global energy research and consultancy firm, now expects South Asian LNG demand to decline by around six million tonnes this year, against earlier expectations of growth. But does falling demand really suggest relief when it is being driven by prohibitively expensive and increasingly scarce supplies? For economies dependent on imported energy, the more troubling possibility is that businesses and power producers are being priced out of the market, with consequences for industrial activity, electricity costs and economic growth.

All of which returns us to the uncomfortable political calculation at the centre of this crisis.

Trump may still be able to move markets temporarily with a promising statement or a diplomatic announcement. But markets are increasingly demanding evidence that the conflict can actually be contained, that energy infrastructure can recover and that another regional escalation will not undo whatever progress has been made.

Perhaps a durable settlement eventually restores the president’s influence over oil prices. But if the economic consequences of the war have acquired a momentum of their own, one question may prove rather harder to talk away: how much longer can Trump promise relief from a crisis that his own decision to go to war helped create?

Copyright Business Recorder, 2026