"Flickers of Hope in a Black Sea of Carnage"
by Leo Hohmann
"Oil prices gave a little flicker of phony hope over the last few hours. As smoke from the Iran War 2.0 darkened over the weekend, oil prices climbed to almost $91/bbl for Brent crude. Then a single individual in Iran teased the idea that maybe a deal could still be struck with the US, so lunatic oil investors stomped the price down to around $86. It came off the highest levels of the day as a spokesman for Iran’s foreign ministry was quoted as saying negotiations with the U.S. could be pursued “based on national interests.” Uh huh.
That obviously stupid move lasted a heartbeat because, sometime around that brief atrial flutter in the price of oil, Iran struck some more oil tankers running through the part of the strait that the US likes to pretend it is protecting for commercial traffic, turning the tankers into raging infernos. In response to that and devastation of its military bases by other Iranian attacks that cost the lives of US servicemen, the US attacked an Iranian nuclear plant that is still under construction, something Iran had said was an absolute red line. So, Brent oil prices shot back up to over $89.50/bbl mid-day.
This would be the same Iran whose parliament just voted to make negotiations with Donald Trump Illegal. The same Iran that said attacking that particular nuclear plant would be crossing a major red line. So, why was anyone dumb enough to think the oil problem was suddenly better?
To underscore how delusional the thinking was, the price wobble of hope happened after the same weekend when the US has moved more refueling planes into the region and has been more openly talking about putting boots on the ground to take over Kharg Island, a move consistent with needing more refueling planes. Iran says, bring those boots in. We’ll be glad to close the net around them!
It means investors are still treating the conflict as something they recognize and believe they can compartmentalize. Well, have fun with that! I’m sure the compartments will hold up as well as the burning compartments of those oil tankers held up between the bulkheads when struck with missiles. The renewed hostilities are “being priced primarily as an oil, inflation and regional-risk event rather than the beginning of a systemic shock,” he said.
Well, it already is a systemic shock, so that kind of thinking is irrational, and the fuel shortages are already a baked-in certainty. Unsurprisingly, gasoline and diesel, which are quick to price in any reason for a rise and slower to price it back out are back up in price again to a US national average above $4/gal. for gasoline and above $5 for diesel. Diesel, of course, influences the inflation on groceries and all goods transported by truck or train as well as energy prices in some regions.
Why would the price of oil drop when the US has promised more …“strikes will continue degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz,” the U.S. Central Command said. Iran’s Islamic Revolutionary Guard Corps (IRGC) claimed on Monday they had targeted U.S. aircraft at the Aqaba airport in Jordan with ballistic missiles, and U.S. military assets and equipment at Kuwait’s Al-Adiri camp and Ali Al Salem Air Base, and in Syria.
The IRGC said in a statement late Monday that, in retaliation, it attacked the U.S. military’s Fifth Fleet in Bahrain, setting its fuel-storage tanks “ablaze” and destroying a Patriot radar, the fleet’s air-control radar and a C-RAM early-warning radar system. “The retaliatory operation is continuing,” it said.
So, yeah, plenty of reason for prices to have taken that sudden dip! I think oil traders must be drinking Texas Tea and hallucinating on the fumes of empty oil tanks. Marco Rubio, the U.S. Secretary of State, said the United States would continue its strikes on Iran until Tehran continues to attack vessels in the Strait of Hormuz. I’m thinking that is written incorrectly: The US will continue its strikes on Iran for as long as Tehran continues to attack vessels in the strait. “As long as Iran insists on controlling an international waterway, we’re going to have to respond to that. The United States always remains open to a diplomatic solution,” the U.S. official said.
Except one report today says Trump is desperately considering ceding control of the entire strait to Iran as the US is running low on munitions—low enough that it cannot long sustain a return to full-scale war, having sold and given so many weapons to Ukraine and sold and given so many to defend Israel during the Gaza War, the Lebanon Hezbollah war and now its bombardment by Iran. The US has also used so many weapons up in its own attacks on Iran during last summer’s Iran War 1.0 and this year’s 2.0, necessary, apparently, to complete the “total” decimation and obliteration of Iran’s nuclear weapons program that was already completed last summer. And the US has lost so many weapons due to Iran’s bombing of US bases all over the Middle East as well with its destroyed air force.
Ponder the realty-based path
Forget smoking the petroleum-based hopium. Ponder reality. If you want to see what is likely to happen with oil prices, consider how the rising price in oil was buffered during the first part of this war and what has happened to those buffers since then:
In the days before the war, there was oversupply of about two million barrels a day, providing a “head start”, the International Monetary Fund (IMF) said in a report on July 15. The world’s top crude oil importer, China, had an outsized role in swaying global oil prices. Since March, it has slashed oil purchases significantly, contributing to reduced global demand. Analysts have attributed this reduction to rising electric vehicle adoption, the use of massive stockpiles and the maturation of alternative fuel sources, such as the increased use of coal in chemical production.
Production outside the Gulf, led by the US, also rose by nearly two million barrels a day above 2025 levels, the IMF said…Governments and international bodies drew heavily on emergency stockpiles. The International Energy Agency (IEA) coordinated the release of 400 million barrels of petroleum, and the US released millions of barrels from strategic reserves.
HOWEVER: Some analysts are sounding the alarm again. The IMF warned that while the factors above helped cushion the initial blow, “much of that room has now been used up”…. Spare capacity has been used up and global strategic and commercial stocks are lower now than when the war began.
What has saved the world in the past four months might not be able to save the world going forward. “The IEA released 400 million barrels, hoping it was a short-term supply shock. But they are not designed or capable of countering a shock that goes on for six to eight months.” “The US strategic petroleum reserve (SPR) is closing in on 300 million barrels, which is the optional minimum for these stockpiles, at a 43-year low.”
Markets are “too complacent” about a smooth restart of Gulf oil production and Hormuz flow normalization. “Moreover, China is returning to the crude market to buy for its SPR and export refineries.” India was able to maximize Russian crude oil purchases in the second quarter of 2026, especially after the US issued a sanctions waiver, allowing countries to purchase Russian oil in March … but it might not be possible to do so on a sustained basis as … Russian refiners have also been severely hobbled by the Ukraine strikes….” Diesel supplies face a “double whammy” as Russia bans diesel exports after Ukrainian drone attacks on its refineries….
Even when Iran declared the Strait of Hormuz closed, oil from the Gulf was “leaking” through alternative routes such as Saudi Arabia’s east-west pipeline…. A significant amount of Gulf oil had been sent to the Red Sea through a Saudi pipeline to the Red Sea port of Yanbu. This week, however, Iran has asked Yemen’s Houthi movement to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure.
That has actually already happened today: Houthi militants in Yemen on Monday declared a maritime embargo against Saudi Arabia effective immediately, threatening to exacerbate the oil supply disruption triggered by Iran’s attacks on tankers in the Strait of Hormuz. The Houthis have repeatedly threatened to close the Bab el-Mandeb Strait during the U.S.-Iran war. The strait is a choke point for commercial ship traffic that connects the Red Sea to the Gulf of Aden and global markets.
However, that still didn’t stop the complacency in the oil markets: But crude oil prices were little changed in response to the Houthis’ threat. Brent oil, the international benchmark, had jumped nearly 4% overnight to break $90 per barrel as at least three U.S. service members have died during recent fighting between the U.S. and Iran. Prices subsequently eased after Tehran indicated it was still open to talks with Washington.
Complacency isn’t smart. It’s wishful thinking. It’s denial of reality. The world might not know it is in a supply shock yet, because much of this reality is still working its ways down the pipelines, and it is the nature of shock to initially neutralize pain … though only for a short time. “We’ve burned through all of the buffers we had. Everything,” said one trader. “All of that’s now gone…Now we have close to nothing … and market complacency around Hormuz flows is being severely tested,” Sen warned.
On thing in favor of the flicker of hope, though I’m sure it will not win the day, is that Trump is desperate for a deal: U.S. precision-munitions stocks are reportedly thinning. Analyst assessments built on published inventory data suggest roughly 56 PRSMs have been built to date, fewer than 2,000 Tomahawks remain in the global stockpile, and perhaps as few as 700 are available to CENTCOM specifically. If accurate, that is not a force sized for an open-ended war of attrition.
Put together, the thesis is blunt: this isn’t the U.S. grinding Iran down. It may be Iran grinding the U.S. down — deliberately extending a campaign it believes it can outlast, using an accuracy advantage Washington didn’t anticipate against a munitions stockpile that isn’t built for a long fight…Sources indicate Iran’s inner leadership circle is not, in fact, in a hurry for a ceasefire — believed to want additional time to finish current objectives before any deal is struck. That’s been my claim all along. Iran is playing the long game, making this a war of attrition, by stretching things out with talks without letting any oil through the strait for West so that their oil stocks will run dry and their economies will start to heave.
On the other side of that whisper of hope, we have this: Donald Trump is considering his options to launch a “wider war” against Tehran as more American warplanes are deployed to the Middle East. However, a US official familiar with administration discussions said the operation would be limited by dwindling stockpiles of air defense and long-range munitions. Then, when that is out, what do we do if some nation actually attacks the US? So, will the president get desperate enough to cede full control of the strait to Iran as Iran demands, or will he put boots on the ground to take Kharg Island, as he has been considering?
As the world’s emergency petroleum supplies dangerously dwindle and prices again rise, the Trump administration appears to have lost the upper hand and faces a stark choice: escalate the conflict in a prolonged morass resembling Ukraine, or capitulate and let Iran control the world’s leading energy artery—with the ability to charge service fees for passage and recoup costs, a toll in all but name— energy and geopolitical analysts told Fortune.
That would be a fairly longterm worsening for the entire world that came about because of Trump’s war. Eventually, alternative piped routes will be laid, but that will take time. The one thing I am certain of is that, no matter what Trump decides, the longterm price in oil is in for a hellish ride. If the president announces a new deal, the price will, of course, drop just as was reported above, because the markets seem relentlessly stupid enough to keep believing a ceasefire will avert the oil shock. It won’t. It may stop Trump from making it worse than what it is already set in concrete to be, but experience has taught us any new deal isn’t likely to last long either.
“I don’t think there’s any military option for reopening the Strait of Hormuz,” said Gregory Brew, senior analyst for Iran and energy with the Eurasia Group. “The Iranians have considerable leverage here. I don’t see them backing down and, honestly, time is probably on their side…” The options are to escalate or cut a deal. And I think the [Trump] administration is likely to do the first, see it fail, and end up with the second,” Brew said…
“All of the signs point to higher prices and a longer duration,” said oil forecaster Dan Pickering, founder of the Pickering Energy Partners consulting and research firm. “We’re in the fifth month of this. We have fewer strategic reserves. We have less flexibility, less optionality. It’s a more precarious starting point for round two….”
Iran has clearly demonstrated the heightened value of the Strait of Hormuz, and that’s why it’s so insistent on maintaining control at any cost militarily and economically to wait out the U.S, Pickering said. “We’ve seen how expensive it is to shut everything off. The irony is before all this started that value was there for free for all the participants. “So, are you going to wind up worse off? Yes.”
And the U.S. has very limited options pressing forward, Brew said.“Trump can escalate and potentially widen the conflict to one that causes even more damage and pushes oil prices even higher.” Or he can try to outlast Iran, a middle path that seems unlikely to succeed. Or he cedes the strait to Iran to reopen it.
Because emergency oil stockpiles aren’t depleted—yet—and the price per barrel remains below $100, Brew expects Trump to attempt an escalation that’s now playing out before he feels he’s truly running out of options in a month or two. “My sense is that things are going to get worse before they get better,” Brew said. The U.S. is intensifying its attacks, and Iran is targeting more energy infrastructure of its Gulf neighbors, including potentially the Saudi’s Red Sea traffic, he added.
Even another peace deal is unlikely to last, he said. “It’s not going to be fully resolved. We’re likely to see continued flareups, continued rounds of skirmishing and hostilities. I don’t expect anything more durable than an interim deal that allows traffic to resume somewhat.” In the meantime, “We’re going to see more fireworks in the next two or three weeks before we see any kind of progress towards de-escalation or accommodation.”
As for that whispered ceasefire that brought a flutter of misguided hope in the morning …This morning, Iran rejected a U.S.-backed 10-day Qatari ceasefire proposal, with senior Iranian analyst and close adviser to Iran’s negotiating team Mohammad Marandi dismissing the offer with a blunt message: “Don’t even think about it.”
The proposal reportedly called for a 10-day truce that would reopen two shipping lanes through the Strait of Hormuz. Marandi has previously said Iran has “no plans” to resume negotiations, citing a “fundamental lack of seriousness” from the Trump administration, while Iranian officials have repeatedly said talks will not resume until the threat against Iran has ended.
So the closure of the Strait of Hormuz will not likely be ending soon. That means the flow of oil will not be resuming soon. We (and the rest of the world) are going to go through a very significant shortage - and some outages - of fuel. Prudence dictates that responsible people make plans for that eventuality.
Oops. Hope gone."
o
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