On the one hand, Iran is reportedly ready to reopen the Strait of Hormuz within seven days, Brent crude fell below $100, and shortly afterward... came the denial. And as if that weren't enough, Trump took the stage at the UN and said he has a “big decision” to make. A deal or annihilation.
OIL LOSES STEAM
Oil fell for a fifth consecutive session. US WTI is coming off its biggest one-day decline since August 4.
Yesterday, at one point during the day, Brent was down 2.6% at $97.73 a barrel. After the denial, it recovered part of the decline, but remained below $100, at around $98.
“Why do we care so much about one number?” you might be wondering. Because since the beginning of the year, Brent is up 63%. US diesel prices hit a record. And all of this pushed up inflation and bond yields around the world.
The reason is the Strait of Hormuz. A narrow passage through which roughly 20% of the world’s oil and liquefied natural gas normally passes.
But it wasn't just the news that pushed prices down. Saudi Arabia is bringing the East-West pipeline back online, which had been shut down following attacks. Put simply, it is the Saudis’ main alternative route around Hormuz. It has a capacity of 7 million barrels per day, and the goal is for exports from the port of Yanbu on the Red Sea to resume within the week, albeit at reduced volumes.
WASHINGTON AND TEHRAN
Now let’s look at the two sides.
At the UN, Trump defended the war. He said Iran had been building a missile arsenal before embarking on a “crazy race for a nuclear bomb.” He then laid out the choice: a deal that would allow Iran to rebuild? Or to “annihilate” it, and do so quickly?
His prediction? A deal “immediately after” the November 3 midterm elections. “They’re waiting to see how I do in the election. What they haven’t figured out is that I’m not running,” he said.
He also called on all countries to completely isolate Iran economically. Treasury Secretary Scott Bessent even threatened to “shut down” Iranian airlines. Anyone providing them with fuel or selling them tickets would be kicked out of the dollar system.
There is, of course, a major “but.” Those who monitor the sanctions say they have so far not been as effective as expected. The reason is that they are not putting pressure on China, which buys the overwhelming majority of Iranian oil.
On the other side, Iran. According to Reuters and Kyodo, an anonymous official said the Strait would reopen within seven days if the US eased military pressure and lifted the naval blockade. “The UN is a golden opportunity for the US to return to diplomacy,” the official added. A little later, however, came the denial. And the Islamic Revolutionary Guard Corps said it was prepared for a “long war.”
So you might ask... how can they withstand it? Their inflation rate has reached almost 90% and the rial is collapsing. Even so, they are not backing down.
THE GULF PAYS THE PRICE
And this is where things get even more interesting. Because the neighbors are the ones paying the bill.
The Gulf countries met with Trump and, according to sources, were expected to ask him to avoid any escalation. Five of the nine worst-performing economies of the year are in the region. Qatar’s GDP will shrink by 12% and Kuwait’s by 11%. Yes, you read that correctly. Qatar’s prime minister described it as an “earthquake” for the region.
And this is where Yemen’s Houthis come in, backed by Iran. They say they struck “sensitive” targets in Riyadh and captured Perim Island in the Red Sea. What does that mean? It means that Iran and its allies are moving closer to controlling two critical oil chokepoints. Hormuz and Bab el-Mandeb, the passage Saudi Arabia uses to bypass Hormuz.
Trump refused to help Riyadh and, according to reports, canceled a planned airstrike. Britain, meanwhile, will provide in-flight refueling for Saudi aircraft for several weeks. And the G7 condemned the Houthi attacks.
WHAT WE EXPECT FROM HERE
“And when will all of this end?” you might be wondering.
The big question is whether Trump will meet Iranian President Pezeshkian in New York. Trump said he might be open to it, but neither side has indicated that it will actually happen. According to Bloomberg Economics, such a meeting could revive the Islamabad Declaration and freeze the war. For Tehran, however, it would come at a high domestic political cost.
Then there is November 3. Americans are clearly against the war, and this is expected to cost the Republicans. It is also worth noting that Trump has repeatedly threatened escalation without carrying it out. And later this week, there is also the Trump–Xi meeting.
And as the King of Jordan put it: “If anyone doubted that a crisis in our corner of the world stays there, look at the energy and supermarket bills of ordinary families, from Mumbai to Madrid and Minnesota.”
