Crude Pops as Trump Threatens to Shoot Iranian Boats
The crude complex was given a boost in the early parts of the European afternoon when US President Trump made a bizarre, unexpected threat against Iran.
He said he had ordered the US navy to shoot down (not sure how you can shoot down a boat, Donald) and Iranian boats that harass US ships.
Over the past few years, US tankers and other ships passing through the Strait of Hormuz (the stretch of sea to Iran’s south) have frequently had issues with the IRGC (the Iranian Revolutionary Guard Corp., Iran’s army/navy). At times, tankers have literally been kidnapped.
Tanker harassment by the IRGC has typically had a positive effect on the oil market, as crude oil traders have it as increasing the likelihood of a US/Iran war. War in the Middle East would threaten a huge proportion of global oil supply (think, much of the world’s oil is produced in Saudi Arabia, Iraq, Kuwait, Iran etc. so a war in this area could threaten all of that supply).
Many saw Trump's tweet, therefore, as aimed at giving a lift to the crude complex after all of its recent turmoil. Remember, Trump has a strong incentive to push crude prices higher and keep the US shale industry in business; much of the business is located in Trump’s political heartland and in swing states. Ahead of the election, he needs to protect the economies of these regions of the US as much as possible in order to maximise his chances of being reelected.
Trump's tweet did the trick, however. WTI crude advanced north of the $15 mark from below $12, up more than 30% on the day. Meanwhile, Brent rose above $22 from below $20 and is up roughly 15% on the day.
Understandably, Trump is desperate. The US economy (much like the rest of the world economy) faces collapse amid the Covid-19 crisis. Crashing oil prices threaten to hit some of his key political support regions even harder.
The fear is that he will get so desperate to lift oil prices that he might actually start a war with Iran.
This would probably be a magic bullet for the US shale industry. Not only would prices skyrocket (likely back to the $40s or $50s), but Middle Eastern output would be crushed, allowing US shale to fill the void.
Given that Trump has framed himself as the “bring the troops home” President, though, this might not go down too well with the rest of the country… let’s hope sanity prevails!
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