Bessent predicts $40 crude oil and lower yields after Iran war

Iran's strategic move to restrict oil traffic through the Strait of Hormuz is proving less effective as the United States aids Gulf producers in maintaining crude flow, according to the Wall Street Journal. Since July, Tehran has been unable to ship oil from the Persian Gulf, but Washington's naval blockade has enabled Gulf Arab states to transport substantial volumes through Hormuz despite Iranian missile and drone attacks.

On average, about 5 million barrels of crude, mostly non-Iranian, passed through the strait over the past 28 days, with another 2.5 million barrels moving through Gulf of Oman ports, including Fujairah in the United Arab Emirates. These figures constitute over 40% of the region's prewar oil flows. Despite these efforts, global crude prices have remained under $100 a barrel, partially due to China tapping into domestic reserves and cutting imports.

This has weakened Iran's leverage to manipulate global oil markets and compel a response. Washington's blockade has also failed to compel Iran to reopen the waterway or alter its overall approach. The rial is depreciating, inflation is rising, and gasoline shortages are becoming common in Iran. President Masoud Pezeshkian has reported a 25% to 35% decline in the country's trade.

Other Gulf economies are also experiencing challenges, particularly in countries lacking alternative sea routes, as liquefied natural gas, fertilizer, and other commodities face constraints. Iranian attacks on tankers and U.S. military installations have continued, but Tehran has refrained from targeting major Saudi Arabian and UAE cities or the government's leadership.

The U.S. has also refrained from attacking major Iranian cities or its current leadership. Iran now faces a critical decision: return to negotiations or escalate militarily to increase pressure on Washington. As its earlier projection of withstanding about five months of severe economic pressure nears its limit, Iran must choose between negotiation or further military escalation.

The upcoming November U.S. midterm elections may complicate this calculation, as Iranian leaders may see little incentive to ease restrictions and lower energy prices before the polls. Should Iran persist, oil markets could face renewed escalation around Hormuz.