Iran bends the knee
Iranian missiles launched at a US air base in Qatar were a signal of de-escalation
If Iran had really wanted to retaliate against the US for attacking three of its nuclear facilities over the weekend, it would have sunk an oil tanker in the Straits of Hormuz. That would have resulted in chaos in global oil markets, causing oil prices to spike, which could have severely damaged an already beleaguered US economy.
Iran chose not to do that. Instead, it fired missiles at a US air base in Qatar, signaling that it wants to de-escalate. Global oil markets immediately understood. Oil prices fell sharply. The chart below shows the intraday Brent oil price for the last 30 trading days in Bloomberg. Yesterday’s fall almost fully reversed the recent spike in oil prices. The de-escalation signal from Iran was a very powerful one.
Iran’s reluctance to weaponize the Straits of Hormuz is yet more evidence of the primacy of global oil markets. When Russia invaded Ukraine in February 2022, oil prices soared because markets feared the West would embargo Russian oil. That never happened. The West feared such an embargo would spike oil prices and drive its own economies into recession, something that was especially sensitive ahead of midterm elections later that year in the US. Russia desperately needed to keep exporting oil to prevent its own economy from imploding.
The compromise that was struck in December 2022 was the G7 oil price cap, which allowed Russia to keep using Western oil tankers provided it received no more than $60 per barrel of exported crude. Since this was more or less the spot price for Urals crude at the time, you can be forgiven for thinking this was largely a performative exercise. Western policy makers got to say they acted against Russia. Russia got to keep exporting its oil with almost no penalty.
Iran’s rockets at Qatar were similarly performative today. If Iran really wanted to retaliate against the US, it would sink an oil tanker in the Straits of Hormuz, driving up insurance premia and plunging global oil markets into turmoil. The fact that it refrained from doing so - after unprecedented US attacks on its nuclear facilities - is akin to Iran bending the knee to the US. Of course, there are still many unknowns, notably whether the US has successfully disabled Iran’s nuclear program, but - from the perspective of markets - President Trump has won this round.
I’d be interested in hearing more about this analysis… From the outset, I don’t think I fully understood the thought process that led to so many people imagining that Iran’s retaliation against the US—which has become the biggest oil-producing country in the world, and a substantive net exporter—would involve sinking an oil tanker in the Strait of Hormuz, when that action’s primary impact would be to drive the price of oil higher... It was even more confounding when the side-effects would include undercutting nearly every viable part of the Iranian economy (which seems to be managed by a government that has made room for reformists that are actively looking to expand the diversity of their economic output).
I’m sure a portion of the commentary is related to the idea that it was a viable form of retribution 20 years ago… but (to this novice observer) it seems pretty short-sighted in 2025?