Trump’s Options to Tame Oil Prices Dwindle Amid Iran Conflict
As the conflict in Iran leads to a spike in oil prices and an increase in US gasoline costs, officials from the Trump administration are exploring strategies to alleviate the burden on consumers and mitigate potential voter discontent. Yet American presidents have repeatedly learned a difficult lesson since the 1970s. When global oil prices begin to surge, it becomes challenging to protect individuals from the repercussions. Policymakers have deliberated on several strategies to lower gasoline prices domestically, such as utilizing strategic reserves, limiting US exports, and suspending gasoline taxes. However, without a resolution to the Iran conflict, it is probable that swift solutions will remain elusive. “Those of us who have been through this before know there are no easy solutions,” stated Bob McNally. “As long as the war continues to disrupt energy supplies,” he said, “the president has few effective tools to quickly bring down oil prices, and that’s just a reality.” Oil prices have surged amid the ongoing conflict, as hostilities in and around Iran have disrupted tanker traffic through the Strait of Hormuz. This narrow waterway, located off Iran’s southern coast, usually facilitates approximately 20 percent of the global oil supply and a significant share of its natural gas. The global nature of oil trading has swiftly resulted in increased prices for gasoline, diesel, and jet fuel in the United States. Experts indicated that until tanker traffic normalizes — whether due to the conclusion of the war or the cessation of Iranian threats to ships — it will be challenging to reduce prices significantly. As the conflict continues, the risks of prices escalating further increase. “This is the largest supply shock in the history of the market,” stated Rory Johnston. “Until normal traffic resumes through the strait, everything else is just tweaking around the edges.”
International crude prices have increased by approximately one-third since the onset of the conflict, remaining around $100 per barrel for a significant portion of Monday before experiencing a notable decline following President Trump’s statement that the war is “very complete, pretty much.” Gasoline prices in the United States have surged by 17 percent, now averaging approximately $3.50 per gallon, marking the highest level since 2024. Mr. Trump has been engaging with advisers to explore strategies for reducing energy costs. Analysts indicated that possible options might involve waiving federal taxes or imposing restrictions on US fuel exports. Trump administration officials have largely minimized the seriousness of the oil shocks, asserting that any disruptions will be short-lived and expressing confidence that the conflict in Iran will soon come to an end. “We’re putting an end to this threat once and for all, and the result will be lower oil and gas prices for American families,” Mr. Trump stated on Monday. If Iran continued to disrupt oil flows in the Strait of Hormuz, Mr. Trump stated, “we’re going to hit them at a level that they have not seen before.” We are achieving a clear and decisive victory. “We’re way ahead of schedule.” Taylor Rogers stated, “President Trump and his entire energy team have had a strong game plan to keep the energy markets stable well before Operation Epic Fury began, and they will continue to review all credible options.” One swift measure the United States could implement would be to release oil from the Strategic Petroleum Reserve, a reserve of crude generally reserved for emergencies. Other countries maintain their own strategic reserves; however, on Monday, the G7, a coalition of industrialized nations, announced that they would refrain from a coordinated release at this time. “That’s not going to completely replace Hormuz, but it’s the single most important physical thing that Western countries can do,” stated Mr. Johnston.
Mr. Trump criticized the Biden administration for its decision to release oil from the reserve following Russia’s invasion of Ukraine in 2022. Up to this point, he has chosen not to utilize the stockpile. The US reserve currently holds approximately 415 million barrels of oil within its underground caverns, with a maximum output capacity of 4.4 million barrels per day. That represents a small portion of the approximately 20 million barrels per day of oil and oil products that were transported through the Strait of Hormuz prior to the conflict. Even the act of releasing oil from the reserve may provide limited assistance. In 2022, following the Ukraine crisis, the Biden administration made the decision to release approximately 1 million barrels per day for a duration of 180 days. This action led to a moderation in oil prices, which, however, remained elevated, staying above $100 per barrel for a significant portion of the year. Alternative approaches to mitigate price shocks may provoke more debate. Senator Mark Kelly put forth a proposal last week to temporarily suspend the federal gasoline tax, which is set at 18.4 cents per gallon. Accomplishing this would necessitate congressional action and would diminish federal funding allocated for highways. Analysts indicated that a more drastic possibility could involve the United States temporarily restricting oil exports once more.
In 2015, Congress lifted a longstanding ban on crude exports following a significant increase in America’s oil production, driven by the fracking boom. The United States currently exports over 10 million barrels per day of crude oil and petroleum products. In theory, compelling US producers to retain more oil domestically could lead to a temporary decrease in domestic prices by generating an oversupply of crude. However, an export ban might also interfere with refinery operations and negatively impact European and Latin American nations that engage in trade with the United States. It has the potential to disrupt the financial landscape of the US oil industry. “It’s a terrible tool, likely to do more harm in the long run,” stated Kevin Book. “However, in these circumstances, politicians frequently struggle to refrain from intervening and allowing the market to resolve the issue on its own.” Another complex possibility would be for the United States to relax sanctions on Russia, which has millions of barrels of oil stored in tankers that it has been unable to sell. Last week, the Treasury Department granted a temporary sanctions waiver, allowing Indian refiners to increase their purchases of Russian oil. Alternative proposals, like easing environmental regulations to allow refineries to create more affordable summer gasoline blends, would yield a more modest impact. “There’s a tried-and-true playbook that gets brought up every time prices spike,” stated Jason Bordoff. “However, in this scenario, if the Strait of Hormuz stays closed, there are limited alternatives that could significantly impact that situation.”
In the past week, there has been a significant reduction in oil and gas tanker traffic passing through the Strait of Hormuz. Approximately 10 ships have already been attacked during the fighting, and many ship operators have ceased attempts to make the transit. Last week, the Trump administration unveiled a $20 billion initiative aimed at alleviating insurance expenses for vessels navigating the strait. Experts indicate that it is improbable to sufficiently reassure numerous ship operators who are concerned about potential attacks from Iranian drones. While the administration has proposed the notion of military escorts for tankers, organizing such measures may require time. Meanwhile, Saudi Arabia and the United Arab Emirates are collaborating to transport several million barrels per day of oil south to the Red Sea via existing pipelines that possess some spare capacity. However, that can account for only a small portion of the output lost due to the closure of the strait. Oil-producing nations in the Persian Gulf could be compelled to halt their operations if they are unable to continue exporting crude oil. Iraq and Kuwait have already announced their plans to cut production, and the implications could be enduring: Analysts indicated that even if the strait reopens, it may take weeks, if not months, to restart production at shut-down wells. “If the strait remains closed for months, crude oil prices could rise as high as $135 per barrel,” according to Rystad Energy.
One question is whether elevated global prices might encourage US oil producers to begin drilling and increasing crude production to address the supply gap. US oil production achieved unprecedented levels, hitting approximately 13.6 million barrels per day last year. However, certain analysts express skepticism that the current price spike will offer sufficient certainty for drillers to boost production. “There’s a lot of caution,” stated Mr. McNally. “The problem is, we know that oil spikes caused by geopolitical emergencies can often quickly lead to recessions and prices collapsing. So the last thing anyone wants to do is order expensive rigs and by the time they get them going, prices have fallen back down again.” One final action the United States could take is to further diminish its dependence on oil consumption. The US economy exhibits significantly reduced sensitivity to fluctuations in crude oil prices compared to the oil crises of the 1970s, largely due to the enhanced fuel efficiency of vehicles and various industries today. However, the Trump administration has significantly reduced vehicle fuel-economy standards and terminated federal backing for electric vehicles. Even if those policies were to be reinstated, it would take years for them to produce any effect. “The problem is that once the immediate crisis passes, our political attention span evaporates pretty quickly,” said Mr. Bordoff. “We don’t stay the course and do things that put us in a better position for the next crisis.”
