Ukraine’s targeting of Russian oil refineries has taken significant Russian refined supply off the global market, according to a column on the latest jump in oil prices. The writer pairs that loss with heavy damage to refineries in the Middle East and says flows of refined products will stay below the levels seen before the two wars, even if crude from the Gulf keeps moving.
Crude through the Strait of Hormuz is running close to pre-war volumes, helped by US Navy escorts, some tankers that appear to pay Iranian fees for passage, and higher flows on Saudi Arabia’s pipeline to the Red Sea. Prices have risen anyway. After trading below $US100 a barrel last month, oil climbed to just under $US117 a barrel last week, and futures pricing suggests it could remain above $US100 well into next year. Dated Brent, for near-term physical delivery, was around $US125 a barrel late last week after a sudden jump.
Getting the oil out has become far more expensive. Chartering a tanker through the strait costs about 12 times the pre-war rate, and insuring the cargo costs more than three times as much. Captains are paid nearly six times their former salaries, plus bonuses in the tens of thousands of dollars, and crews two or three times pre-war pay. Ships shuttle in and out of the strait and transfer cargoes offshore, tying up tanker capacity.
Those flows have held up despite a recent rise in Iranian attacks on ships and Houthi attacks on Saudi infrastructure, oil fields and King Khalid International Airport in Riyadh, as well as on the pipeline and the port of Yanbu. The UK Maritime Trade Operations Centre reported 11 confirmed attacks in the strait last week and said most targeted ships do not report incidents. Other authorities put this month’s incidents at least at 28.
Donald Trump halted US attacks on Iran in late July, hoping to cool oil and US fuel prices before the midterm elections, now just over a week away. He has kept that pause while seeking other relief: a G7 release of strategic diesel reserves, permission to use normally off-road, tax-exempt diesel on US public roads, and a lifting of sanctions on Russia paired with a deal with Vladimir Putin to import Russian diesel. The column says none of this has had a material effect. US gasoline is still 40 per cent higher than a year ago and diesel about 74 per cent higher, and Trump’s poll numbers have hit new lows.
His language has since hardened. On Thursday he told reporters that “something one way or the other” would happen “fairly soon” with Iran. On Sunday he said it was “getting to be decision time” on a deal or a return to attacks. On Fox News he said: “I have a decision to make. Do I finish it off, which would be very easy to do, or do I make a deal?” He added: “That’s all. We don’t play games.”
The United States has been moving diplomats and military staff out of the region and sending more forces to the Middle East. Iran has vowed to retaliate if attacks resume. Foreign Minister Abbas Araghchi wrote that the last time Washington wanted to finish the job, Iran emerged stronger, invited another attempt, and warned that Iran has unfinished business of its own.
The column treats the chance of renewed fighting as the main driver of the price spike. Traders, it says, see both a significant probability that the war flares again and a risk that Hormuz and the Saudi pipeline are materially affected, despite Trump’s confidence that he can end it quickly. He has voiced that confidence since the United States and Israel launched attacks on 28 February. Nearly eight months later, the writer says that confidence was misplaced, and futures prices suggest traders doubt his Department of War can soon do what it has failed to do over that period.
Because vehicles run on refined fuel, the column says the cost to consumers and companies in the United States and elsewhere will last for some time after the wars end, whenever that is.