U.S. President Donald Trump went into the Iran war convinced that America’s vast oil wealth would insulate the country from the kind of energy shock now battering much of the world. Four weeks into the conflict, that shield is looking fragile.
Trump’s wager has only partly paid off. U.S. oil prices have risen less sharply than those elsewhere since U.S.-Israeli air strikes against Iran on February 28 ignited a regional war that rapidly engulfed the Middle East’s energy infrastructure, blocking the Strait of Hormuz and cutting off roughly a fifth of global oil and gas flows.
Brent crude, the global benchmark, has surged about 55% since late February to around $110 a barrel, while U.S. West Texas Intermediate has climbed 50% to around $99. The
divergence between the two benchmarks recently hit its highest in a decade, excluding a brief spike during the COVID-19 pandemic.
This gap reflects a structural shift in energy markets. The U.S. is now the world’s largest producer of oil and gas and exports more energy than it imports, thanks to the shale boom of the past 15 years.
While U.S. refiners still import crude to optimise operations – including some Middle Eastern grades that accounted for roughly 4% of consumption last year – America’s
direct exposure to the Gulf is far smaller than that of Asia or Europe.
Asia is the most vulnerable region, relying on the Middle East for about 60% of its oil imports. The sudden disruption forced oil refiners to cut run rates and governments to roll out fuel subsidies and conservation measures at enormous economic cost. Physical crude prices for imports into the region recently soared above $150 a barrel.
America’s relative advantage, however, is eroding fast. With Middle Eastern supplies constrained, buyers in Asia and Europe are increasingly turning to alternative sources –
including the U.S. – for crude oil, refined fuels and natural gas. That global scramble is pulling more U.S. hydrocarbons into the international market and tightening supplies at home.
U.S. crude exports are on track to hit a record 4.6 million barrels per day in March, according to analytics firm Kpler. Exports of refined products, mainly gasoline and diesel, are also expected to reach an all-time high of about 3.2 million bpd.
The lesson is blunt: in interconnected oil markets, domestic abundance does not buy immunity. U.S. gasoline pump prices have already jumped more than 30%
this month and are likely to breach $4 a gallon within days, despite White House efforts to rein in prices.
