Trump’s Iran War Should Have Spiked Oil Prices—But Something’s Off

For two months, the big economic story about the Iran war has been clear: oil and gas prices are sky-high, threatening to tank America’s already fragile economy. But here’s the kicker—prices aren’t nearly as high as they should be given the scale of the supply shock.

When Russia invaded Ukraine in 2022, the world feared losing 3 million barrels of oil per day. Prices shot above $120 a barrel and gas hit $5 a gallon. Today, Iran’s shutdown of the Strait of Hormuz has taken a staggering 14 million barrels offline—the largest supply disruption ever recorded. Yet oil trades around $110 a barrel and gas prices hover near $4.40.

Analysts expected prices to hit $150 or more by now, with some predicting $200-plus. Matt Smith, lead oil analyst at Kpler, calls it “crazy” that prices aren’t higher. The simple supply and demand math just doesn’t add up.

Why? The usual suspects don’t explain it. U.S. and Latin American oil production has surged, but not enough to fill the massive gap. Saudi Arabia and the UAE can’t boost exports due to the strait closure. Refineries are maxed out or damaged by the conflict. So increased production isn’t the answer.

There’s been a huge buildup of oil reserves—580 million barrels stored in tankers and warehouses before the war. The Trump administration’s strategic releases and easing of sanctions on Russian and Iranian oil also added temporary relief. But combined, these measures only cover about 8 million barrels a day, still leaving a massive shortfall.

Demand has fallen by over 4 million barrels a day, more than during the 2009 financial crisis. Consumers are cutting back due to high costs, but in some regions, especially the Middle East and Asia, demand is dropping because oil and fuel simply aren’t available. Europe faces jet fuel shortages; Asian factories are shutting down; India’s cooking fuel use has dropped 13%.

Even with these demand drops, prices should be much higher. The missing piece? Speculation. Roughly 11% of oil futures contracts are traded by speculators betting on the war’s outcome rather than physical oil supply. These traders are banking on Trump quickly ending the conflict, which keeps prices suppressed.

Helima Croft, former CIA analyst and commodity strategist, says the White House “has been very successful in convincing a corner of the market that the war will be over soon.” This artificial optimism is distorting prices and hiding the real risks.

Meanwhile, U.S. consumers have been somewhat insulated. Gas prices are high but not catastrophic, and drivers haven’t drastically changed habits. But the stockpiles cushioning the market are rapidly shrinking. U.S. crude inventories unexpectedly plunged by over 6 million barrels recently, a sign that the shock absorbers are wearing thin.

This price distortion isn’t just an economic curiosity—it’s a symptom of the Trump administration’s dangerous strategy. By manufacturing a war with Iran, sabotaging diplomacy, and using sanctions as economic warfare, the administration is risking a global crisis to distract from domestic scandals and consolidate power. The market’s strange behavior is a warning sign that the real costs of this reckless gamble are still to come.

We’ll be watching closely as oil prices and supply tightness evolve. One thing is clear: Trump’s Iran war is already wreaking havoc, and the worst may be yet to come.