May 08 , 2026
While American consumers are rich enough to pay much higher oil prices, poorer countries that rely on oil and petrol imports will be harmed immensely. Oil prices could rise over 150 dollars per barrel, perhaps even get to 200 dollars. American drivers at the pump could see gasoline cost 7 dollars a gallon. - Image MarketWatch
Trump, Iran, and the Oil Price
After 39 days of American and Israeli airstrikes, and counterfire by Iran with missiles and drones against several nations in the region, a shaky ceasefire began on April 9. So far, the ceasefire has held, but the two sides are engaged in a tense standoff with both Iranian shipping out of the Persian Gulf blocked by the US Navy, while all other shipping has been blocked at the Strait of Hormuz by Iran’s military. As a result of this oil prices have surged from 60 dollars per barrel to a current 110 dollars, and American drivers are paying on average 4.46 dollars per gallon compared with 3.17 dollars per gallon a year ago.
Trump won his election in 2024 on the backs of promises to reduce the cost of living, but instead he has sent gas prices soaring and inflation has turned higher under his watch. His poll ratings are abysmal, and some polls show his approval rating down to 32%, a level last seen towards the end of George W. Bush administration as the country was in the throes of the Great Recession.
The real puzzle is why are oil, and hence gasoline prices, not much higher? The closure of Persian Gulf oil from the world market means that roughly 15 million barrels per day of supply have been taken off the market. Normally the world consumes 100 million barrels a day. Oil prices have risen, but consumption has only declined about 2 million barrels per day, far less than the 15-million-barrel deficit. The solution to that puzzle is that nations around the world are drawing down on their inventory of oil, tapping their strategic reserves, and relying on crude oil that was already on the high seas in tankers when this war started. All three of these together have allowed consumption to shrink far less than production.
But this math won’t last. Pretty soon these buffers will be tapped out. The world will then have to figure out how to make do with far less oil. In the long run the solutions are obvious. Develop new sources of supply. Build pipelines that can bring Gulf oil to new ports on the Arabian Sea outside of the Strait of Hormuz. Switch from gasoline to electric vehicles. However, all these solutions will take years to implement. But the global economy needs to slash consumption immediately. The only way to do that is for crude oil prices to rise enough to destroy 12 million barrels per day of demand.
To cut consumption by 12 million bpd it would take a global recession. The first step would be for oil prices to rise high enough that consumers have no choice but to cut back. While American consumers are rich enough to pay much higher oil prices, poorer countries that rely on oil and petrol imports will be harmed immensely. Oil prices could rise over 150 dollars per barrel, perhaps even get to 200 dollars. American drivers at the pump could see gasoline cost 7 dollars a gallon.
Politically, such an outcome would be intolerable for Trump. The midterm elections are less than six months away. Trump and the Republicans are well aware that historically the President’s party does poorly at the midterms, losing seats in the House and Senate. But the scale of loss is closely tied to the President’s popularity. If gasoline costs 7 dollars a gallon in November, the bottom will fall out for the Republicans and they will lose both the House and Senate by wide margins, probably locking in a Democratic majority for the next six years. A Democratic controlled Congress will move to aggressively check Trump’s behavior in a way that the Republicans have led slide for the last 16 months.
Trump’s calculation is that Iran is on the ropes. With the cutoff of oil exports Iran’s economy is teetering. Trump hopes that this will force Iran to make major concessions that will allow him to proclaim victory in this war of choice that he started. But the mullahs in Iran are not accountable to the Iranian people. They don’t have to worry about elections. While Trump was able to kill Supreme Leader Ayatollah Ali Khamenei and many of his closest associates, Trump did not get the Venezuela model of outcome he desired. Instead of Khamenei being replaced by someone willing to accommodate the US, he was replaced by his own son. Power has also shifted to the hardline Islamic Revolutionary Guard Corps, whose senior commanders are all committed to resisting US pressure.
Trump attacked Iran last year and claimed to have destroyed Iran’s nuclear program then. He attacked this year because he needed to destroy Iran’s nuclear program, something he claimed he had already done. Iran has little reason to trust Trump, who has been willing to tear up deals and go back on his word repeatedly. Iran will never hand over its stockpile of enriched uranium, a pile large enough to build at least 10 atomic bombs. It has offered to end the blockade on the Strait of Hormuz in exchange for the US lifting its blockade of Iran’s ports. But such an outcome of this war would leave Iran in a stronger position than it was before, and would be humiliating for Trump. Trump has no good option, and his hope that Iran gives in under economic pressure is likely forlorn. Iran is already working on opening trade links through Pakistan and Russia to allow it to obtain vital imports of food and medicines. These cannot be blocked by the US.
Could Trump restart the war? He has already bombed 16,000 targets in Iran; it is unclear what other targets he could strike that would change the Iranian regime’s calculations. Trump is also in theory limited by the War Powers Act, which requires the US President to get explicit Congressional authorization for any military actions that goes on for longer than 60 days. Trump knows he does not have anywhere near the votes to support this war in Congress. For now Congress has given Trump a free pass, but if he resumes airstrikes, or if this standoff continues into the summer and gas prices soar, even the Republicans might decide that enough is enough.
