Crude cools, but war risks keeps mkts guessing
Representative image
New Delhi: Oil prices may remain elevated as President Donald Trump's weakened political position after the midterms complicates efforts to end the Iran war and Tehran grows more emboldened, industry executives said, although crude oil cooled hours after the results came out.Brent futures dropped $9.27, or 8.9%, to $94.29 a barrel, touching the lowest level since September 4. US West Texas Intermediate crude futures were down $7.44, or 7.8%, to $88.54.Also read: And quiet flows the Don: Trump goes from rage to rapproachementTrump could seek to demonstrate strength by intensifying military operations against Iran, but Democrats' control of Congress could constrain his ability to fund the war in West Asia. "Trump has already lost the midterms and cannot seek re-election. To prove the American public that he is right, he may escalate the military conflict," an executive said.Since the war began, Trump has pursued two objectives: intensifying military pressure on Iran while keeping oil prices in check, often by signalling that the conflict was nearing an end and would not escalate. With the elections behind him, he may be more willing to let oil prices rise in the short term and focus on achieving his military objectives.A decisive outcome, whether through military action or a deal, would be preferable to the prolonged stalemate that has imposed heavy costs on oil importers, executives said. But an escalation involving ground forces could also prolong the conflict, further disrupting energy supplies and raising costs for consumers.A deal with Iran could offer Trump a way to claim victory while bringing down oil prices and easing the cost-of-living pressures that contributed to the Republicans' defeat. However, a settlement that allows Iran to impose a permanent toll on shipping through Hormuz could undermine Trump's ambition to be remembered as one of America's greatest presidents, another executive said.Also read: Trump admits Iran war hurt Republicans in midterms but says ‘Iran thing’ had to be doneIndian refiners would ideally prefer unrestricted passage through Hormuz, an executive said.Whether or not Iran is allowed to levy a toll, a resolution that restores the flow of oil through the strait would reduce the risk premium on crude prices and bring down freight rates, lowering procurement costs for importers such as India, he said.Brent crude is near $100 a barrel, while freight and insurance costs are several times higher than before the war. Brent was around $70 before the war started.The cost of the prolonged disruption has been compounded by uncertainty over the reliability of supplies. Although oil flows through the strait have risen sharply in the past two months, they remain expensive and unpredictable, making the current situation unsustainable for importers."This is better than no flows at all but definitely not sustainable," an executive said.
Read the full story at The Economic Times →