If you really want to push oil prices up, the U.S. has "almost only one way": the Strait of Hormuz

As the United States’ military actions in Iran triggered a surge in oil prices, policy tools are nearly exhausted. Experts warn that if the Strait of Hormuz cannot be reopened quickly, all other measures Washington deploys will be little more than a drop in the bucket.

This week, the Trump administration announced a series of measures, including providing insurance and escort for transit tankers, temporarily easing sanctions on Russian crude oil, and discussing options to boost Venezuela’s oil production. However, most experts agree on one conclusion: only by swiftly restoring the transit capacity of the Strait of Hormuz can the oil price trend be fundamentally reversed.

Brent crude oil closed this week at $93 per barrel, a 28% increase for the week, hitting a new high in 2023; U.S. benchmark West Texas Intermediate (WTI) surged 36% to $91 per barrel, marking the largest weekly increase since 1983.

According to an earlier article by Wallstreetcn, Goldman Sachs warned that if no resolution is seen by the end of this week, crude oil prices could break through the $100 per barrel mark next week; if the blockade of the strait persists throughout March, prices could surpass the historical peaks of 2008 and 2022 ($147).

The strait is the core issue; other options have limited impact

Mike Sommers, CEO of the American Petroleum Institute, bluntly stated, “The real focus must be on reopening the Strait of Hormuz because all other measures, even combined, cannot provide the stability needed by the global economy.” He added that other options “have only marginal effects on prices.”

The Strait of Hormuz is a vital passage for about one-fifth of the world’s oil supply. Currently, shipping traffic through the strait has plummeted, with fewer than 50 ships passing in the past week, while around 500 oil and gas vessels are stranded in surrounding waters. Shipowners say they will not risk sending ships through the strait without security guarantees.

Escort, sanctions relief, increased production: multiple measures still struggle to address the urgent crisis

The Trump administration has rolled out several emergency measures this week. On the insurance front, development finance companies announced a $20 billion reinsurance plan for transit tankers; however, industry experts question whether these measures can provide enough coverage to rebuild shipowners’ confidence.

On the supply side, the U.S. Treasury temporarily eased sanctions on Russian crude oil exports to India on Thursday, hinting at possible expansion of exemptions. Treasury Secretary Janet Yellen stated, “We may lift sanctions on more Russian oil. A large amount of sanctioned oil is floating at sea, and in effect, by lifting sanctions, the Treasury can create supply.”

Additionally, officials mentioned the possibility of increasing Venezuelan oil production. Since the Maduro regime was overthrown in January, the U.S. has taken over local operations. However, whether these measures can quickly produce effective supply remains uncertain in the market.

Strategic Petroleum Reserve running low, policy buffers significantly reduced

Washington’s ability to respond to this crisis is constrained by the severe depletion of the Strategic Petroleum Reserve (SPR). In 2022, then-President Biden used the reserve extensively to curb rising oil prices caused by the Russia-Ukraine conflict, leading to a sharp decline in inventories. Trump had promised to replenish the reserve after taking office but failed to do so when oil prices were low last year.

Kevin Hassett, director of the National Economic Council, said on Friday that using the SPR is not currently under consideration. Texas Republican Congressman August Pfluger criticized, “The depletion of the reserve leaves the U.S. in a very vulnerable position.”

He told the Financial Times, “I have warned for years that using the strategic reserve for short-term political gains weakens long-term energy security. Now, at a time when this emergency buffer is most needed, the reserve is far below its proper level. This is a serious national security issue.”

Market pressure reaches a critical point, policy credibility is in question

Some experts criticize the Trump administration’s crisis management. Michael Alfaro, Chief Investment Officer of Gallo Partners, an energy and industrial hedge fund, said, “In the past 48 hours, many policy decisions or signals from the government have shown a frantic attempt to soothe the oil market.”

He warned that if there are no signs of the Strait of Hormuz reopening by Monday, commodity prices could surge again.

However, some defend the White House’s strategy. Dan Brouillette, who served as Energy Secretary during Trump’s first term, told the Financial Times that the government has a longer-term perspective than financial markets. “High oil prices are only temporary. Now is the time to remove this regime and end its decades-long extortion of the strait.”