The Iran War is back on again, it seems. Over the weekend, the United States pummeled nearly 200 Iranian targets across the massive country. Iran retaliated by hitting US military facilities throughout the Gulf Arab states. All this came after US President Donald J. Trump declared that his temporary ceasefire, which lasted barely 18 days, was “over.” He referred to the Islamic Republic as “scum.”
Since then, the war has resumed–with Trump insisting that the United States will take full control over the contested Strait of Hormuz (SoH).
America’s Shrinking Strategic Petroleum Reserve
Many were surprised that the president restarted the conflict. After all, the United States is particularly sensitive to spikes in global oil prices. Beginning the Iran War anew, even if it is on the grounds of reopening the SoH (through which 20 percent of the world’s oil must pass), will only harm the United States’ economy. That is especially true, considering how drastically depleted America’s Strategic Petroleum Reserve (SPR) has gotten.
Since the SoH was closed at the start of the war, the Americans had relied heavily on their 400-million-barrel-strong SPR to deflate energy prices for American consumers. Officially, the SPR has been drained by about 100 million barrels since the war began. But many oil experts fret that the SPR is stored in salt caverns for many years (decades, even). Therefore, while there may be around 300 million barrels of oil remaining in the SPR, not all of that oil is usable. The environment and the chemical processes engineers must employ to keep the oil in those caverns fresh enough to be usable corrupt much of the oil stored in the SPR.
If those figures on the declining viability of the remaining oil in the SPR are accurate, then restarting hostilities right now–especially when those hostilities result in the closure of the SoH again–will only harm the US economy by raising pump prices.
The Inflation Spiral Returns
Higher prices at the pump mean higher prices everywhere.
All that leads to higher inflation, which in turn prompts the Federal Reserve to either maintain relatively high interest rates or raise them.
And that becomes a noose around the economy’s neck, dragging it into stagflation.
After the ceasefire effectively ended, crude oil jumped immediately. Gasoline prices started increasing instantly, too. As a result of all these developments, financial markets are roiling. Today, most economists are uncertain whether this will become a prolonged conflict or another temporary flare-up. But the reduction in the SPR’s viability is likely the key difference-maker here. That’s what many experts fear will make these price spikes long-lasting (with all the concomitant negative impacts to the general economy).
Trump’s Energy Gamble
Interestingly, a recent report in The Guardian showcases how the Trump administration is intentionally redirecting federal funding away from renewable energy projects toward petroleum programs. Trump has also attacked gas stations in the United States that dare to raise their prices (as if the raising of prices at the pump were done on a whim when, in reality, prices rise in keeping with market forces–notably supply-and-demand).
At the same time, Trump’s energy team has spent billions attacking wind projects while providing $1 billion in support for coal. Generally, the Trump administration has expanded support for petroleum producers–even providing subsidies for coal producers.
The Guardian worries that these moves, while intended to support the main energy producers for the United States–conventional petroleum (“fossil fuel”) products–could have the opposite effect. By cutting off some of these renewable sources precisely when a major, long-term energy shock is underway, fears abound that it will only exacerbate price increases for ordinary Americans (dragging down the overall economy and harming Trump and the Republicans politically).
China’s Diversified Energy Advantage
China has already proven that the best solution for times like these is to have a mixed energy profile. Yes, they’ve been able to ride out the current energy crisis because of their massive SPR (they had 1.4 billion barrels in their SPR before the war began, and most experts assume they’ve drawn down around one-third of that since the war began).
China has also built out a massive alternative energy ecosystem that has allowed Beijing to reduce its exposure to foreign sources of oil and natural gas–notably those that must come via sea lanes controlled by the United States Navy–and to ensure that its energy supply remains constant and not disrupted. The Americans, however, remain steadfastly committed to so-called “fossil fuels.” That’s fine (because alternative energy is not yet capable of fully replacing oil and natural gas). Yet, lack of diversification is a very dangerous way to go about things–especially given the current geopolitical instability.
As the crisis continues and the SoH remains disrupted to some extent, Washington and industry here in the United States will have little choice but to look toward alternative methods for developing energy sources to offset the loss of the heavy crude oil that usually comes through the SoH.
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.
