As the war between the United States and Iran drags on, the dynamics of the global crude oil market are in turmoil. In this process, the interests of various nations are also being heavily shaken: the United Arab Emirates (UAE) withdrew from the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) for the first time in 59 years, while US and Venezuelan crude oil exports have reaped windfall benefits. As market instability grew too severe, US President Donald Trump moved once again to shift the situation, declaring that he would launch an operation starting Wednesday to support the safe navigation of third-country vessels trapped in the Strait of Hormuz. By Trump's account, it would be too easy a method to stabilize oil prices, but it appears premature to gauge its concrete effectiveness. This is because oil prices are surging even further while pressure on allies such as Korea is only increasing. From Korea's standpoint, the possibility that Trump will repeatedly force cooperation using tariff hikes and the withdrawal of US Forces Korea as cards can no longer be entirely ruled out.
US Gas Prices Climb, Cornering Trump... Europe Resorts to "Cross-Border Refueling," OPEC to Boost Output from June
The Washington Post reported on Wednesday that the White House's response tools are dwindling amid growing public discontent over gasoline prices. As of Monday, the national average gasoline price in the US was $4.39 per gallon (about 3.78 liters), the highest since the Iran war began on February 28. The Trump administration began releasing 172 million barrels from the Strategic Petroleum Reserve starting in March to lower gasoline prices. It also extended for another 90 days, until August, a waiver of the "Jones Act," which grants US vessels a monopoly on transport between US ports. In the federal Congress and elsewhere, measures such as abolishing the fuel tax or banning US crude oil exports are being discussed as countermeasures, but they have not been easily utilized as cards due to funding issues and resistance from the refining industry. Analysts say the rise in oil prices is acting as a political burden on Trump ahead of the November 3 midterm elections. As the situation grew urgent, US Treasury Secretary Scott Bessent sought to reassure public opinion in a Fox News interview on Tuesday, saying, "When the war ends, US oil prices will be far lower than at the start of this year, in 2020, or at any point last year."
The surge in oil prices is pushing not only the US but other countries into chaos. In Europe, the farce of crossing borders to refuel in neighboring countries is even taking place. Europe has oil fields in the North Sea and elsewhere, but having reduced refining facilities amid attempts at carbon-neutral transition and stricter environmental regulations, it relies heavily on the Middle East for petroleum products such as aviation fuel. On Monday, the UK's Financial Times (FT) reported that the oil industry and experts warned that by the end of this month, inventories of crude oil, gasoline, diesel, and aviation fuel will fall to dangerously low levels, causing prices to soar.
The NL Times reported Tuesday that as the Netherlands' gasoline price rose to 2.62 euros (about 4,500 won) per liter, the number of residents returning after filling up jerry cans in Belgium has surged. In Belgium, the gasoline price per liter has also risen from 1.4 euros (about 2,420 won) before the Iran war to 1.9 euros (about 3,300 won) now, but it is cheaper than in the Netherlands. In the Netherlands, the number of people filling up in Germany, which decided to cut the fuel tax for two months, is also increasing. Germany's gasoline price is 2.1 euros (about 3,640 won) per liter, cheaper than in the Netherlands. Meanwhile, people in eastern Germany are going to Poland to buy gasoline. Poland's gasoline price is 6.14 zloty (about 2,510 won) per liter, far lower than in Germany.
The UAE abruptly withdrew from OPEC and OPEC+ starting Monday, taking advantage of the turmoil in the oil market. OPEC+ is a coalition of OPEC 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 has expressed dissatisfaction with Saudi Arabia, which has sought to maintain high oil prices since the COVID-19 pandemic, and firmed up its will to increase output.
After the UAE's exit, seven OPEC+ member states, including Saudi Arabia and Russia, issued a joint statement Tuesday saying they would increase crude oil output by an additional 188,000 barrels per day starting next month. In detail, 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 Tuesday, among these, Kuwait was unable to export any crude oil at all during the past month due to the fallout from the war. It is the first time in 35 years, since the Gulf War of 1990-1991, that Kuwait has been unable to sell crude oil.
US, Venezuelan Crude Exports Surge... Trump Says "Will Support Rescue of Third-Country Vessels in Hormuz from Wednesday"
The current rise in global oil prices originated from the outbreak of the Middle East war and the blockade of the Strait of Hormuz. Iran has been controlling the Strait of Hormuz the entire time since the war broke out on February 28. On top of this, the US also began a maritime blockade on the 13th of last month. This strait, before the war, was where about 20% of the world's daily crude oil traffic passed, an area with an enormous impact on non-oil-producing countries.
The closure of the Strait of Hormuz does not only deal blows to the US economy. According to CNBC on Tuesday, US crude oil exports hit a record high of 5.2 million barrels per day last month due to the fallout from the war. This is an increase of about 33% from 3.9 million barrels per day in February, before the war broke out. As tankers from Asian countries that imported crude oil from the Middle East before the war headed en masse to the US, the country is effectively enjoying an export boom. US light crude cannot completely replace Middle Eastern heavy crude, but demand is concentrating as a kind of last resort.
In fact, Japan, which had depended on the Middle East for 95% of its crude oil imports, is diversifying its import sources to include the US and Russia. According to Japan's Jiji Press, as of the 23rd of last month, the number of tankers departing from the US Gulf of Mexico bound for Japan increased from three a month earlier to thirteen. On Wednesday, Russian crude oil arrived in Japan for the first time since the war.
Venezuela's crude oil exports last month also reached 1.23 million barrels per day, the highest since late 2018, when the US imposed sanctions. According to Reuters on Monday, by export destination, the US was the largest at 445,000 barrels per day, followed by India at 374,000 barrels and Europe at 165,000 barrels. This is thanks to the establishment of a US-friendly regime following the ouster of President Nicolás Maduro in January this year. The Wall Street Journal (WSJ) reported that US oil giants such as ExxonMobil, Chevron, and ConocoPhillips have begun dispatching staff to Venezuela, which they had previously been reluctant to approach, and exploring business possibilities.
As the war dragged on far longer than expected and high oil prices emerged as a political burden, Trump finally pulled out a special measure. Trump posted Tuesday on his social networking service Truth Social, announcing that an operation to support the safety of third-country vessels in the Strait of Hormuz would begin Wednesday. Trump said, "Countries around the world are asking the United States whether it can help free the vessels trapped in the Strait of Hormuz," adding, "I told them we would safely escort them out of the limited waterway (the Strait of Hormuz) so they can freely and smoothly continue their business." He continued, "'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 have no choice but to respond forcefully."
Currently, about 2,000 vessels and some 20,000 crew members are estimated to be trapped in and around the Strait of Hormuz. According to the Associated Press, on that day a bulk carrier was also attacked in the Strait of Hormuz, in what is presumed to have been carried out by Iran.
Aimed to Weaken Iran's Negotiating Power, But Oil Prices Surge... Pressure on Korea to Deploy Troops Begins in Earnest
Trump, who had been pressing Europe, Japan, Korea, and others to dispatch warships, played the card of a Hormuz Strait escort operation, which is interpreted as aimed at stabilizing oil prices and curbing Iran's negotiating power.
Although he did not disclose specific plans, it appears the operation will be more than simply US warships escorting vessels. Depending on the situation, there is a possibility he will not refrain from using force. Along with this, by highlighting the "humanitarian process," there may also be an intent to isolate Iran in the international community and impress the legitimacy of the war upon the American public. Trump may also again demand that Korea, Japan, and the North Atlantic Treaty Organization (NATO) dispatch warships. Trump has effectively taken retaliatory measures against Germany, announcing a hike in European Union (EU) automobile tariffs from 15% to 25% and a reduction of 5,000 US troops in Germany. US Central Command introduced on X on Wednesday that "two US merchant ships have successfully passed through the Strait of Hormuz and are sailing safely."
It is also noteworthy that Trump's announcement came at a time when he rejected Iran's ceasefire proposal. In an interview with Israel's public broadcaster Kan on Tuesday, Trump drew the line, saying, "I reviewed the 14-point amendment Iran proposed, but I simply cannot accept it." That day, Iranian Foreign Ministry spokesperson Esmaeil Baghaei said he had received the US response to his country's negotiation proposal through mediator Pakistan and was reviewing it. Earlier, the US first presented Iran with a 9-point ceasefire proposal, and Iran handed over a 14-point amendment in response. In the interview, Trump also again urged Israeli President Isaac Herzog to pardon Prime Minister Benjamin Netanyahu, who is on trial on corruption and other charges.
Naturally, Iran strongly pushed back against this. According to AFP, Ebrahim Azizi, chairman of Iran's parliamentary National Security and Foreign Policy Committee, claimed on X (formerly Twitter) on Tuesday, "We will regard any US intervention in the new maritime order of the Strait of Hormuz as a violation of the ceasefire." Iran also significantly expanded the scope of its control over the strait.
As expected, the US pressure on Korea to deploy troops has begun in earnest. Trump said on Truth Social on Wednesday, "Iran fired several times at the cargo ships of unrelated countries such as Korea in connection with the Project Freedom operation," adding, "It seems it is time for Korea to join the operation as well." This amounts to preemptively concluding that an Iranian attack was the cause, even as the Korean government is in the middle of ascertaining the facts about an explosion incident involving a vessel operated by a Korean shipping company in the Strait of Hormuz.
The key to Trump's gamble ultimately rests on whether international oil prices fall and stabilize. As tension in the Strait of Hormuz rose further due to Project Freedom, oil prices instead surged. If this operation had been easy to accomplish, it would not explain why the US had left the situation unaddressed all this time. The price of Brent crude futures for July delivery on London's ICE Futures Exchange and US West Texas Intermediate (WTI) futures for June delivery on the New York Mercantile Exchange rose 5.80% and 4.39% on Wednesday, respectively, to $114.44 and $106.42.
Depending on how Trump's Project Freedom operation unfolds, not only international oil prices but also stock prices, bond yields, gold prices, and cryptocurrency prices are all expected to be affected. Above all, ally Korea now also bears the uncertainty of being pressed to join the operation and facing pressure for tariff hikes as well as US troop reductions or withdrawal. This means that, depending on the operation's effectiveness, international oil prices and global trade relations could face a new turning point.
※ "Trump Stocker" is a column delivering on-the-ground stories and analysis of current issues related to US markets, companies, policies, politics, and diplomacy that may be helpful for investment in the era of President Donald Trump. Subscribe to receive useful news from the US.
