The price tag on Trump's Iran decision shows up first in oil. Today is a good example.
Brent crude hit $126 a barrel Thursday morning, its highest level in four years, before giving most of it back. By mid-morning ET, Brent was down 3.2% to $114.22, with WTI off 1.4% at $105.38.
Axios reported that U.S. Central Command was set to brief Trump on possible military action against Iran. Trump had also rejected an Iranian offer to reopen the Strait of Hormuz, which means the U.S. blockade stays in place.
In English: traders priced in escalation early, then took profits as the picture got murkier. The early surge was the war premium, and the pullback is everyone waiting to see what Trump does next.
Trump set the tone himself. On Wednesday, he posted on Truth Social: "Iran can't get their act together. They don't know how to sign a nonnuclear deal. They better get smart soon!" He paired the post with an AI-generated image of himself holding a gun.
Brent and WTI are both up roughly 60% since the war started on Feb. 28, and that rally has a single root cause: the Strait of Hormuz. Roughly a fifth of the world's oil normally moves through that 21-mile chokepoint.
Goldman Sachs estimates that flow has fallen to about 4% of normal. Iranian exports are constrained, storage is filling up, and the UAE's exit from OPEC on May 1 is unlikely to add real supply in the near term.
Warren Patterson at ING said the market has moved past hoping for a quick fix. The longer the disruption runs, the harder it gets to lean on inventory, and higher prices are the only thing left to slow demand.
The price hasn't broken demand yet, but it's starting to bend it. Goldman Sachs flagged that global oil consumption in April may be roughly 3.6 million barrels per day below February levels, with most of the drop in jet fuel and petrochemicals.
Bill Perkins at Skylar Capital said oil could climb to $140-$150 a barrel if disruptions continue. He also noted that product markets, particularly diesel, are tighter than headline crude prices suggest, with sharp price hikes and logistical bottlenecks that won't ease right away even if there is a ceasefire.
Strategic reserves and crude already in transit have cushioned headline crude prices, but refined products like diesel and jet fuel are running closer to the bone.
The UAE's exit from OPEC on May 1 was supposed to add supply to a tight market. So far, Goldman analysts say any meaningful UAE production boost is more likely to show up over the medium term than fill the near-term hole left by the Hormuz blockade.
That leaves the market relying on inventory and price - not new barrels - to balance through the second quarter.
Trump's call on whether to greenlight military action is the next variable. If he does, oil resets higher; if a deal materializes, supply comes back faster than demand can catch up.
Until Hormuz reopens, oil moves on Trump's next call more than on the supply numbers.
