U.S. President Donald Trump originally said the Iran war would last four to five weeks, but we’re now hitting the six-month mark. What remains most surprising is the resilience of financial markets in the face of what was previously thought to be a doomsday scenario – the multi-month obstruction of the Strait of Hormuz.
The critical trade artery, through which roughly 20% of global energy flows used to pass, has effectively been closed for much of the time since February 28. It’s unclear exactly how much oil is currently getting through. While U.S. Energy Secretary Chris Wright claimed last Friday that over 8 million barrels per day were leaving the Gulf, tracking data shows something closer to 5 million bpd. Asia’s depressed crude imports in August suggest it’s closer to the latter. What’s clear, though, is that we’re nowhere near the volumes seen before the conflict began.
Yet Brent crude oil prices LCOc1 are currently trading under $90 a barrel, above pre-war levels but far from the high triple-digit figures that many feared we could see if the strait were not fully reopened by the end of summer. It’s important to remember, though, that the major concern for the global economy right now is not so much crude but refined products, where prices are continuing to sound alarm bells. European diesel profit margins are near record highs, and refined product and gas markets are sending a number of other signals that they could remain tight through next year.
Nevertheless, oil prices did dip early this week after some positive diplomatic signalling out of the Middle East. While talks between Washington and Tehran remain stalled, Iran and Oman reported that they are working to finalize the details of an agreement over control of the strait. Qatar also met with senior Iranian officials in Tehran on Thursday to discuss conditions for normalizing transit through the waterway.
These actions came after U.S. Treasury Secretary Scott Bessent’s “economic D-Day” on Monday. Bessent had claimed he would be announcing “the toughest sanctions in history,” with many fearing that Chinese banks could be targeted, but he ended up mostly sanctioning Iranian entities while threatening to impose secondary sanctions if other countries didn’t fully sever ties with Tehran. While this wasn’t exactly the invasion of Normandy, the U.S. shift toward economic warfare could still be having an impact on Iranian strategy, as evidenced by the renewed diplomatic efforts.
For now, though, the protracted conflict appears to be stuck in a period of trench warfare, with small shifts on either side, but no big actions that massively move the needle.
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