The dynamics of the global crude oil market are being shaken as the war between the United States and Iran drags on. Amid the turmoil, the United Arab Emirates (UAE) withdrew from the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) after 59 years, while US and Venezuelan crude oil exports are reaping windfall benefits, upending the interests of various nations. As market instability grew too severe, US President Donald Trump announced on the 4th (local time) that he would launch an operation to support safe navigation of third-country vessels trapped in the Strait of Hormuz, attempting yet another shift in the situation. If Trump's claims hold true, it would be an exceedingly easy method to stabilize oil prices, but it appears premature to gauge its concrete effectiveness. Oil prices are surging further for now, while pressure on allies such as Korea is only intensifying. From Korea's perspective, the possibility cannot be entirely ruled out that Trump will repeatedly force cooperation through tariff hikes and the withdrawal of US Forces Korea.
Trump Cornered by Rising US Gasoline Prices...Europe Takes "Refueling Trips," OPEC to Boost Output from June
The Washington Post reported on the 2nd that the White House's options are dwindling as American public dissatisfaction over gasoline prices grows. As of the 1st, the US national average gasoline price reached $4.39 per gallon (approximately 3.78 liters), the highest level since the Iran war began on February 28. The Trump administration began releasing 172 million barrels from the Strategic Petroleum Reserve in March to lower gasoline prices. It also extended the waiver on the Jones Act, which grants US vessels exclusive rights to transport goods between US ports, for another 90 days through August. The federal Congress and others have discussed countermeasures such as abolishing the fuel tax or banning US crude oil exports, but these cards have been difficult to use due to funding issues and pushback from the oil refining industry. Analysts say rising oil prices are becoming a political burden for Trump ahead of the November 3 midterm elections. As the situation grew urgent, US Treasury Secretary Scott Bessent sought to calm public opinion in a Fox News interview on the 3rd, saying, "Once the war ends, US oil prices will be much lower than at the beginning of this year, in 2020, or at any point last year."
The surge in oil prices is plunging not only the US but also other countries into chaos. In Europe, people are even crossing borders to refuel in neighboring countries. Although Europe has oilfields such as those in the North Sea, it relies heavily on the Middle East for petroleum products like jet fuel after reducing refining facilities amid carbon neutrality transitions and stricter environmental regulations. On the 1st, Britain's Financial Times (FT) warned that the oil industry and experts cautioned that by the end of this month, inventories of crude oil, gasoline, diesel, and jet fuel would fall to perilously low levels, causing prices to skyrocket.
The Netherlands Times reported on the 3rd that as the country's gasoline price rose to 2.62 euros (approximately 4,500 won) per liter, a growing number of residents are filling up jerry cans in Belgium and returning home. Although Belgium's gasoline price also rose from 1.4 euros (approximately 2,420 won) per liter before the Iran war to 1.9 euros (approximately 3,300 won) now, it remains cheaper than in the Netherlands. In the Netherlands, more people are also refueling in Germany, which decided to lower fuel taxes for two months. Germany's gasoline price stands at 2.1 euros (approximately 3,640 won) per liter, cheaper than the Netherlands. Meanwhile, people in eastern Germany are heading to Poland to buy gasoline. Poland's gasoline price is 6.14 zloty (approximately 2,510 won) per liter, far lower than in Germany.
The UAE abruptly withdrew from OPEC and OPEC+ on the 1st, taking advantage of the turmoil in the crude oil market. OPEC+ is a coalition of OPEC members and 10 major oil-producing countries including Russia. The UAE is the third-largest oil producer among OPEC's 12 member states, after Saudi Arabia and Iraq. The UAE had expressed dissatisfaction with Saudi Arabia's efforts to maintain high oil prices since the COVID-19 pandemic and had been determined to increase production.
With the UAE's departure, seven OPEC+ member states including Saudi Arabia and Russia issued a joint statement on the 3rd pledging to increase crude oil production by an additional 188,000 barrels per day starting next month. Specifically, Saudi Arabia and Russia will each add 62,000 barrels per day, Iraq 26,000 barrels, Kuwait 16,000 barrels, Kazakhstan 10,000 barrels, Algeria 6,000 barrels, and Oman 5,000 barrels. According to ship-tracking firm TankerTrackers.com on the 3rd, Kuwait was unable to export any crude oil for the entire month last month due to the war's impact. This marks the first time Kuwait has failed to sell crude oil since the Gulf War of 1990-1991, 35 years ago.
US, Venezuelan Crude Exports Surge...Trump Says "Support for Rescuing Third-Country Ships in Hormuz Begins on the 4th"
The current rise in global oil prices stems from the outbreak of war in the Middle East and the blockade of the Strait of Hormuz. Iran has continuously controlled the Strait of Hormuz since the war broke out on February 28. The US also joined the naval blockade starting on the 13th of last month. Before the war, the strait handled approximately 20% of global daily crude oil traffic, making its impact on non-oil-producing nations significant.
The closure of the Strait of Hormuz is not solely damaging to the US economy. According to CNBC on the 3rd, US crude oil exports reached a record high of 5.2 million barrels per day last month due to the war's impact. This represents an approximately 33% increase from the 3.9 million barrels per day in February before the war began. Asian tankers that had imported crude oil from the Middle East before the war are now heading en masse to the US, effectively creating an export boom. Although US light crude cannot completely replace Middle Eastern heavy crude, demand is surging as a stopgap measure.
Japan, which had relied on the Middle East for 95% of its crude oil imports, is now diversifying its sources to include US and Russian crude. According to Japan's Jiji Press, the number of tankers departing from the US Gulf of Mexico bound for Japan increased from three to thirteen in the month ending on the 23rd of last month. On the 4th, Russian crude oil arrived in Japan for the first time since the war began.
Venezuela's crude oil exports last month also reached 1.23 million barrels per day, the highest level since the US imposed sanctions at the end of 2018. According to Reuters on the 2nd, the US was the largest export destination at 445,000 barrels per day, followed by India at 374,000 barrels and Europe at 165,000 barrels. This was made possible after a pro-US regime took power following the ouster of President Nicolás Maduro in January this year. The Wall Street Journal (WSJ) reported that major US oil companies such as ExxonMobil, Chevron, and ConocoPhillips, which had previously been reluctant to approach Venezuela, have begun dispatching staff and exploring business opportunities there.
As the war dragged on far longer than expected and high oil prices emerged as a political burden, Trump eventually pulled out an extraordinary measure. Trump posted on his social networking service (SNS) Truth Social on the 3rd, announcing that an operation to support the safety of third-country vessels in the Strait of Hormuz would begin on the 4th. "Countries around the world are asking the United States whether it can help free the ships trapped in the Strait of Hormuz," Trump said. "I told them we would safely escort them out of the restricted waterway (the Strait of Hormuz) so that they can continue their business freely and smoothly." He added, "'Project Freedom' will begin on the morning of the 4th Middle East time," and warned, "If this humanitarian process is obstructed in any form, we will have no choice but to respond forcefully."
Currently, approximately 2,000 vessels and around 20,000 crew members are estimated to be trapped in and around the Strait of Hormuz. According to the Associated Press, a bulk carrier was attacked in the Strait of Hormuz that day as well, in what is presumed to be an Iranian assault.