Oil Prices Hike following Trump’s threat towards Iran

It’s important to understand, that if you are the president of the United States, your dialogue has the power to move markets and cause disruptions in the global economy. For the current president, Donald Trump, much of his unhinged statements occur through the use of Twitter. In the past, he has used Twitter as a medium to clash with fellow American and World leaders alike. On July 23rd, his over-the-top tweet directed at Iran foreshadowed the possibility of a war between the two nations and had an impact on oil prices in the stock market.

The relationship between the U.S. and Iran has always been on edge. The Iran Nuclear deal, signed in 2015, was considered a pivotal moment in diplomacy during the Obama administration, as it limited Iran’s production of Uranium and other nuclear commodities. When the deal was scraped off by the Trump and his cabinet in 2018, tensions began to mount between the two countries. A decision to further impose sanctions on Iran, especially their oil export, prompted the Iranian president, Hassan Rouhani, to caution Donald Trump about pursuing hostile policies against Tehran. He reciprocated in his comments that either peace or war with Iran would occur at its highest degree. In a tit-for-tat exchange, Trump was quick to escalate the rhetoric against Rouhani using a strongly worded ALL-CAPS tweet, which warned Iran never to threaten the U.S. again or they would suffer consequences the likes of which ‘few in history has suffered before’.

In the past, Trump’s twitter rants have managed to rattle the confidence of investors, causing an immediate impact on the stock market. His rhetoric against Iran, which escalated the possibility of a war between the two countries, had an immediate impact on crude oil prices. Iran is the sixth highest exporter of crude oil in the world, accounting for 5% of global export. Most of this oil is shipped through the Strait of Hormuz to countries such as India and South Korea. Following Trump’s tweet, crude oil prices took a hike globally. The global oil benchmark, Brent Crude, went up to a maximum of 0.9% to $73.75. Another oil trading stock, the U.S. West Texas Intermediate (WTI) futures saw an escalation of its oil prices by 0.6%, to $68.64 per barrel.

The Trump’s administration threat to impose sanctions on Iran’s oil exports can have grave consequences. Any disruptions to supplies from Tehran has the potential to tighten global crude stockpiles and severely raise the price of oil even further. Iran has absolute control over the Strait of Hormuz, through which oil shipments from Saudi Arabia, UAE and Iran pass by – accounting for 30% for global oil export. Iran has threatened to stop shipments from passing through this narrow opening if U.S. sanctions get passed. Ayatollah Ali Khamenei, Iran’s supreme leader, suggested that Iran may block all Gulf Oil exports if their own exports are halted.

Donald Trump has also advised his Middle Eastern ally, Saudi Arabia, to pump more oil to balance out the market in case prices rise due to sanctions on Iran. In reality, shunning Iran off its oil exports can have dire consequences not only in oil prices but also across transportation sectors around the world. Using Twitter as a medium to express unhinged feelings of anger towards another country is not only a diplomatic pitfall but also a stock market rattler, and should be controlled for the safety of the market.