Two weeks ago, the heads of American oil firms trundled up to the White House to inform President Donald Trump that America’s energy buffers–the reserves stored up to get the country through an energy crisis–are depleting so fast that a true oil crisis is possible.
America’s Energy Buffers Are Running Out
Not long thereafter, the forty-seventh president appeared to have reversed his previous hardline stance on waging war with Iran and sought a 60-day ceasefire with the intention of fully restoring traffic through the Strait of Hormuz immediately.
Twenty percent of the world’s oil moves through the Strait of Hormuz, an additional 18 percent of its liquified natural gas (LNG), and one-third of the world’s agricultural supplies and other key industrial inputs rely upon the Strait.
Since February 28, when the Iran War began, the Strait has been shut down.
This condition has created massive dislocations in the global energy market, forcing many countries with reserves to drain them precipitously to mitigate the steep spikes in oil prices resulting from the closure of the Strait of Hormuz.
Since the United States had the second-largest energy reserves in the world (behind China’s staggering 1.4 billion-barrel strategic petroleum reserve), the Trump administration flooded the market with its supply to offset the loss of flows from the Middle East. That mitigated some of the worst price spikes that places like Europe and Asia experienced during the war.
Yet it did not prevent the national gas price from reaching historic highs. Without those buffers, though, Americans (and the rest of the world) will suffer from chronically high energy prices.
That, by the way, will lead to price increases everywhere. It will raise inflation, too. If this situation persists–and it seems like it will–interest rates will either remain high or possibly even elevate to offset the hike in inflation, further stunting the Trump administration’s plans for an economic recovery in the next year.
The 60-Day Ceasefire Isn’t the Same as Reopening the Strait
Well, Trump apparently has his 60-day ceasefire. Barring some black swan event in the Mideast, Tehran and Washington will make the ceasefire official this Friday in Geneva, Switzerland.
Under the terms of the agreement, though, Iran has up to 30 of those 60 days to reopen the Strait to the normal, prewar flow of traffic.
And Tehran has made clear that it will not allow the world to use the Strait of Hormuz as it was before the war, without ships passing through the vital waterway paying a toll to Iran.
Iran’s Emerging Control Over Hormuz
Here’s the really interesting thing that no one is daring to talk about in the Trump administration: the ships that Tehran has allowed to pass through the Strait of Hormuz in the last day have all been utilizing the Iranian devised Traffic Separation Scheme (TSS), which is the first step toward exerting permanent control over the Strait in ways that Tehran never did before February 28 of this year.
What’s more, the 60-day ceasefire says that the Iranians must allow for ships to pass through the Strait of Hormuz as they did before February 28. But what happens after day 60?
Everyone secretly understands that the Iranians are going to institute what amounts to a permanent tolling system that will net the Islamic Republic anywhere between $70 billion and $100 billion per year, if Iran charges $1 per barrel of oil that passes through the Strait.
At 20 million barrels of oil passing through the Strait per day (100 million per week), Iran would be charging around $2 million per vessel. Basically, there’s simply no way that the Islamic Republic could let this opportunity pass through their fingers–not after the Americans and Israelis attempted to kill Iran’s leaders and organize a regime change in Iran.
Why the Oil Won’t Start Flowing Overnight
Reopening the Strait, therefore, is not as straightforward as the forty-seventh president of the United States seems to think.
Even if the ships are legally allowed back into the Strait, actual energy flows will take weeks, if not months, to return to normal. That’s because the blockade scattered those ships across the region; insurers remain cautious; mine-clearing and security operations will continue; and export terminals (and related infrastructure) in the Gulf require inspection and repair.
In the meantime, US energy reserves are at their lowest since the Reagan administration; heavy crude is still not reaching the United States in sufficient quantities to offset these losses, meaning there will be economic fallout in the coming weeks and months right here in the United States.
The Real Economic Shock Is Still Ahead
While energy markets are experiencing a phase of short-term irrational exuberance over news that the deal is happening between Iran and the United States, once we hit tank bottom here in the US in the coming week or so, with insufficient levels of oil coming from abroad due to the Strait not being fully reopened and the Gulf production not fully restored, one can anticipate the price of a barrel of oil getting to around (or possibly above) $105 per barrel.
Without those buffers that America had been relying on, the price at the pump for everyday Americans will be high.
And what happens if the 60-day agreement expires and warfare between the US and Iran resumes?
So, yes, the Strait is slowly reopening this year. Energy markets, however, may not fully normalize until 2027.
Further, with Iran saying it will introduce a fee system for ships transiting the Strait of Hormuz, there’ll be an entirely new normal in energy markets. Trump got his deal.
The oil, however, will take longer than expected to flow. In the meantime, with reserves depleting fast, everyone will be paying a higher price at the pump for the next year, dragging the overall economy down.
About the Author: Brandon J. Weichert
Brandon J. Weichert is Senior National Security Editor. He also manages The Weichert Brief on Substack. Weichert also hosts “National Security Talk” on Rumble. He is the author of four bestselling national security books, the most recent of which is A Disaster of Our Own Making: How the West Lost Ukraine (Encounter Books). Follow him via Twitter/X @WeTheBrandon.
