Trump’s Iran war speech paints a grim picture for oil markets with more than 600 million barrels at risk

President Donald Trump has doubled down on the U.S. war against Iran, spiking oil prices Thursday as traders prepare for a longer conflict that will exacerbate the already deep disruption to global energy supplies.

The oil market had hoped Trump would present a clear exit strategy during his national address Wednesday night. Instead, the president said the war will continue for weeks and vowed to hit the Islamic Republic “extremely hard.”

“With the conflict now expected to last at least into deep April, the barrel math becomes increasingly grim,” said Ryan McKay, senior commodity strategist at TD Securities, in a Thursday note to clients.

Nearly 1 billion barrels will be lost by the end of the month, including up to 600 million barrels of crude oil and roughly 350 million barrels of refined products like jet fuel, diesel and gasoline, McKay said. Every month the war drags on will see an additional combined loss of 450 million barrels, he said.

Rapidan Energy forecasts a total net loss of 630 million barrels of oil and products by the end of June when accounting for redirected flows through pipelines, emergency stockpile releases, and inventory drawdowns.

U.S. crude oil prices have soared more than 10% to top $110 per barrel in the aftermath of Trump’s remarks. Brent prices, the international benchmark, jumped more than 6% to top $107.

Buyers of physical barrels of U.S. oil are willing to pay nearly $120 in Houston at the moment or a premium of about $5.50 over the May futures contract, said Tom Kloza, an independent oil analyst at Kloza Advisors.

“The speech was a disaster,” John Kilduff, founding partner at Again Capital, told CNBC. The market is rapidly pricing in the impact of a prolonged war and closure of the Strait of Hormuz, he said.

No U.S. plan to open Hormuz

Trump did not present a U.S. plan to open the Strait during his speech, the vital sea route that Iran has effectively shut down with its attacks on tankers. The Strait connects the Persian Gulf to the global market. About 20% of global supplies passed through the waterway before the war.

“The United States imports almost no oil through the Hormuz Strait and won’t be taking any in the future. We don’t need it. We haven’t needed it and we don’t need it,” Trump said in his speech.

“The countries of the world that do receive oil through the Hormuz Strait must take care of that passage,” the president said. “They must grab it and cherish it. They can do it easily. We will be helpful, but they should take the lead in protecting the oil that they so desperately depend on.”

Trump threatened to bomb Iran’s power plants and send the country “back to the stone ages.” He told countries affected by the closure of the Strait to buy oil from the U.S.

“I can’t believe the U.S military didn’t start degrading Hormuz interdiction capabilities on day one,” Bob McNally, president of Rapidan Energy, told CNBC. “Just as you wouldn’t imagine a parachutist diving out of a plane without putting on the parachute.”

Fuel shortages

Oil prices have been insulated from rallying even higher due to refinery run cuts, a surplus of supply before the war, and the release of emergency oil by the more than 30 countries in the International Energy Agency, said Matthew Bernstein, an analyst at Rystad Energy.

The market is starting to price in the longer-term impact from the war, Bernstein told CNBC.

“Moving forward, there will be no going back to the pre-war status quo,” the analyst said. “Prices will be supported even after the war ends by new demand for stockpiling, heightened insurance and freight costs associated with the Strait of Hormuz, and a broader geopolitical risk premium in the market.”

With the Strait still shut down, oil stockpiles will start to feel pressure. Oil stored on tankers will draw down quickly and onshore inventories could fall to multi-year lows as early as August, TD Securities’ McKay said.

“As market inventory buffers erode, the physical tightness seen thus far in Asia begins to cascade globally,” the strategist said. Crude oil and product prices will “face increasing upward pressure in the coming weeks and months” until high prices start to reduce demand, he said.

Shell CEO Wael Sawan warned last week in Houston that fuel shortages will ripple around the world beginning with jet fuel, followed by diesel and finally gasoline.

“It’s a ripple effect,” Sawan said at the CERAWeek by S&P Global energy conference on March 24. “We see of course South Asia first to get that brunt. That’s moved to Southeast Asia, Northeast Asia and then more so into Europe as we get into April.”

Gas and diesel prices

The U.S. is largely insulated from shortages due to its strong domestic production, said Natasha Kaneva, head of global commodities research at JPMorgan, in a March 26 note to clients. But the West Coast, particularly California, could face a supply disruption by May due to its reliance on imports, Kaneva said.

Retail gasoline prices in the U.S. could surge to $4.25 to $4.45 per gallon in the next two weeks at the current pace, said Patrick De Haan, head of petroleum analysis at GasBuddy, in a social media post. Diesel prices could jump to $5.80 to $6.05 per gallon.

Record gas prices might not be far off, De Haan said. Prices at the pump hit an all-time high of $5.02 per gallon in June 2022 after Russia’s invasion of Ukraine shook global energy markets.

The spike in diesel prices is the most serious issue right now, Kloza said. “That should provoke significant inflation in the second quarter,” the analyst said.