‘The Market Hasn’t Seen the Full Impact’: The Iran War Could Create a Historic Oil Crisis

Three U.S. destroyers came under Iranian missile, drone, and small-craft attack Thursday in the Strait of Hormuz — day 69 of a war the Trump administration insisted would end in days. With strategic oil reserves drawing down to bare buffer levels and the UAE’s air defenses now engaging Iranian drones overhead, the ceasefire Secretary of State Marco Rubio declared after Operation Epic Fury is collapsing in real time.

At Day 69, the Iran War Was Supposed to Last Days — Three U.S. Destroyers Are Now Under Attack, and the Strait of Hormuz Is Closing

Iran Missiles. Image Credit: Creative Commons.

Writing this week, Hoover Institution Fellow and historian Niall Ferguson encapsulated what the war in Ukraine proved a while ago, and which the current conflict with Iran is about to validate as well: “Wars always take much less time to start than you think they will, and last much longer than you thought they could.”

The conflict in Iran has so far lasted 69 days, a far shorter period than the almost four years and three months of the Ukraine War. It is, however, much longer than anticipated. The creaking, aging machine that is the Iranian military was only supposed to last a few days against a combined US-Israel air campaign composed of some of the most sophisticated military technology in the world.

As of today, US President Donald Trump declares that a ceasefire remains in place, but its status is fragile, if not ambiguous. On Thursday, its status became even more precarious as three US destroyers were attacked by Iranian missiles, drones, and a collection of small gunboats.

None of the US naval vessels were ever hit, but US forces carried out retaliatory strikes on Iranian sites that included what are described as launch positions and command centers of the Islamic Revolutionary Guards Corps (IRGC). Mutual recriminations have been issued by both sides, but this exchange of fire takes place at an inopportune moment.

Iran’s missile capabilities. Image Credit: Creative Commons.

It was reported that Iran had been considering a US proposal to end all hostilities at the time. But on early Friday morning, the United Arab Emirates’ (UAE) Ministry of Defence said that its air defense units were “actively engaging” against a missile and drone attack from Iran.

Around the same time, Iranian state media were reporting “explosions” in the Strait of Hormuz and described them as an “exchange of fire” with the “enemy”. Iranian media outlets also reported explosions in Tehran. A statement from Iran’s top military command stated US “aerial attacks” had also hit the coasts at Bandar Khamir, Sirik, and Qeshm Island.

Could Hostilities Really Be Over Quickly

In the past few days, Trump has been saying that the war in Iran will be “over quickly”. Reports from the US news outlet Axios quoted White House sources as saying that it was close to an agreement on a 14-point memorandum of understanding with Iran. That memorandum is expected by Washington to be the starting point for a final agreement on the detailed nuclear negotiations that have been underway with Iran since before the war began.

But on Wednesday, an Iranian foreign ministry spokesman said this US proposal was still only under consideration and that Tehran would forward its conclusions to the Pakistani mediators who have been hosting the US-Iran negotiations.

Pakistan’s foreign minister said his country was “endeavoring to convert this ceasefire into a permanent end to this war,” but a firebrand representative of Iran’s parliament seems intent on torpedoing any chance of a quick end to these hostilities.

Ebrahim Rezaei, who is the spokesperson of the Iranian parliament’s national security and foreign policy commission, subsequently wrote on the X platform that Iran “has its finger on the trigger”, and warned that Iran would “deliver a harsh and regret-inducing response” in the event the US did not “surrender and grant necessary conditions”. He dismissed the 14-point memorandum as no more than a “wish list”.

Aircraft Carrier in Hard Turn. Image Credit: Creative Commons.

Thus, the two sides appear to be even further apart than before. Both have threatened an escalation of violence, despite Secretary of State Marco Rubio’s previous statements that Operation Epic Fury was now over and its objectives had been achieved.

Clock is Ticking: The Oil Crisis Is Building

While the two sides are jockeying for position and the ceasefire appears to be more troubled by the minute, time is ticking by. Each day the Strait of Hormuz remains closed, reads a recent assessment from a leading US financial markets firm, “the world is using up commercial stockpiles, strategic reserves, and crude previously stored in vessels—and those supplies are now running short.”

The same assessment quotes the CFO of a major US oil and gas company, who told Bloomberg TV a week ago, “There’s very little of the buffer left… If you look at the unprecedented disruption and the world’s supply of oil and natural gas, the market hasn’t seen the full impact of that yet.”

Even if the ceasefire does not collapse and negotiations resume, a quick resolution between the two sides is unlikely. Last Thursday, the news agency Reuters quoted the Iranian Foreign Ministry spokesman Esmaeil Baghaei as saying, “expecting to reach a result in a short time, regardless of who the mediator is, in my opinion, not very realistic.”

In the meantime, Trump has been briefed on what the news agency described as “plans for a series of fresh military strikes to compel Iran to negotiate an end to the conflict.”

As the financial firm’s assessment concludes, “no [US-Iran] talks are happening; if there are talks, they won’t be swift; and if the US wants to strike Iran in the hopes of further incentivizing talks, Iran will respond by targeting the US Navy.”

In the end, there would appear to be little room for optimism. Meanwhile, the economic pressures continue to mount. With Trump scheduled for a summit with Chinese Communist Party General Secretary Xi Jinping within a week, and now Xi’s Foreign Minister, Wang Yi, reportedly involved in trying to finalize an agreement before the two leaders meet, there is every reason to believe the situation could go from bad to worse.

About the Author: Reuben F. Johnson

Reuben F. Johnson has thirty-six years of experience analyzing and reporting on foreign weapons systems, defense technologies, and international arms export policy. Johnson is the Director of Research at the Casimir Pulaski Foundation. He is also a survivor of the Russian invasion of Ukraine in February 2022. He worked for years in the American defense industry as a foreign technology analyst and later as a consultant for the U.S. Department of Defense, the Departments of the Navy and Air Force, and the governments of the United Kingdom and Australia. In 2022-2023, he won two consecutive awards for his defense reporting. He holds a bachelor’s degree from DePauw University and a master’s degree from Miami University in Ohio, specializing in Soviet and Russian studies. He lives in Warsaw.