When the war against Iran started, President Trump could have justifiably felt confident that the price of oil could be controlled from the White House. America, after all, is the biggest oil producer in the world. It has the most refining capacity, and, separately, it has by far the world’s strongest military. And yet, over the last 24 hours it has become alarmingly clear that America has lost its ability to cap the price of an oil barrel. Does big trouble lie ahead for both the President and the global economy?
With a single Truth Social post yesterday, President Trump managed to send the prices of both WTI crude oil, the main American benchmark, and Brent crude, the main European one, plunging. The prices for both dropped by almost 10 per cent after the President posted that he had started talks with the Iranian leadership and was suspending bombing of the country’s energy infrastructure.
The trouble is, Trump can only play that card once. A day after his post, the price of oil was back up by 4 per cent and looks set to end the week even higher than where it started. Here in the UK, the Chancellor Rachel Reeves has even less control. In the House of Commons today she set out her attempts to protect consumers from price rises. But given that the UK has effectively banned domestic production of oil, it is impossible to take her seriously. Investigations by the Competition and Markets Authority will no more limit rising prices than Truth Social posts. Only increasing domestic supply can lower prices, but Labour has bizarrely ruled that out.
The war in the Middle East is driving up energy prices in the way that it always does
The blunt truth is this: the war in the Middle East is driving up energy prices in the way that it always does. The seaways have been closed, production and refining capacity has been taken out of the markets, and demand is out-stripping supply.
How high will it go? Goldman Sachs has just raised the possibility of a record $147 (£110) a barrel, while according to the predictions market Polymarket, there is a 25 per cent chance it will hit $150 (£112) a barrel by June.
If it gets anything close to those levels, President Trump will be in big trouble, and so will politicians across the developed world. The price of petrol will go up sharply, rising industrial prices will force manufacturers to close down and shortages may mean that rationing has to be introduced. Meanwhile, bailouts and price-capping schemes will be ruinously expensive for budgets that are already stretched to breaking point.
We can all understand why President Trump is trying to talk the oil price down. With a barrel of oil costing $130 (£97) and upwards, the global economy will be in big trouble, and the Republican party risks getting wiped out in the mid-term elections. The problem is Trump’s strategy isn’t working – and unless the President can find a way to increase the supply of oil, the price will keep on rising.
Comments