Key Takeaways
President Trump has rejected Iran’s response to the U.S. offer for a peace framework, citing heightened demands on their part, including sovereignty over the Strait of Hormuz.
Iran’s demands for an end to the U.S. naval blockade, a lifting of sanctions, and removal of a ban on Iranian oil sales were also rejected by Trump as inconsistent with negotiations so far.
The world is now about one billion barrels short of oil supply because of the conflict, and prices remain elevated for oil and other energy supplies that normally transit the strait.
Trump is considering suspending the gas tax temporarily.
France and the UK are sending warships near the strait to help secure the waterway and free traffic flow when conditions warrant.
President Trump rejected Iran’s latest offer to end the war, indicating that it was totally unacceptable. Among the conditions he found unacceptable were Iran’s demands for U.S. war reparations and recognition of its sovereignty over the Strait of Hormuz, according to Iran’s state-owned broadcaster. Iran also wants the United States to end its naval blockade, guarantee no further attacks, lift sanctions, and remove a ban on Iranian oil sales. Masoud Pezeshkian, Iran’s president, posted on X that the country intends to take a hard line in negotiations.
President Donald Trump’s rejection of Iran’s response to a U.S. peace framework raised oil prices amid concerns that the conflict will continue, keeping shipping through the Strait of Hormuz effectively closed. Disruption caused by the near-closure of the strait has forced Middle East oil producers to cut exports, with OPEC oil output dropping further in April by 830,000 barrels per day to the lowest in more than two decades, according to Reuters. Brent oil, the global benchmark, rose to around $108 a barrel the morning of May 12, and U.S. gas prices averaged $4.50 a gallon, according to AAA.
Amin Nasser, the C.E.O. of Saudi Aramco, warned that disruption of shipping through the strait for more than a few more weeks would result in high oil prices until 2027. The world has lost about one billion barrels of oil over the past two months, and energy markets will take time to stabilize even if flows resume, he said. Restarting shut-in fields, repairing damaged infrastructure, repositioning tanker fleets, and rebuilding depleted inventories will take months or years, depending on how long the conflict drags on and the extent of damage.
JPMorgan analysts expect oil prices to remain in the low $100s for most of the rest of this year, averaging $97 for 2026, highlighting that there would not be a quick normalization once the Strait of Hormuz reopens. They cautioned that the oil market was in a “race against time.” U.S Energy Secretary Chris Wright told Meet the Press that gas prices would most likely remain high as long as the war continued. Wright also said the administration was looking for different ideas to lower gas prices and was considering pausing the federal gasoline tax, amounting to $18.4 cents per gallon, to provide some relief to U.S. drivers.
According to David Blackmon, Persian Gulf output is down 57% from pre-conflict levels. Strategic reserve releases and alternative routing through pipelines like Aramco’s East-West line have helped, but they are not able to serve as a buffer forever. Demand rationing is underway in many countries, and U.S. oil exports are at an all-time high. Indian Prime Minister Narendra Modi, for example, has urged a number of measures, including fuel conservation, work-from-home practices, and limits on travel and imports, as global energy prices put pressure on the country’s foreign exchange reserves.
The loss of about a billion barrels of oil due to the effective closure of the strait has demonstrated the fragility of the global energy system, which will “drive fundamental structural change across the energy landscape,” said Lorenzo Simonelli, the CEO of Baker Hughes. Energy company CEOs have told their investors that governments and industry will likely prioritize energy security and increase investment in oil exploration and production alongside geothermal, nuclear, and grid modernization. Additionally, governments will look to diversify their energy supplies and rebuild oil stockpiles to above historical levels to mitigate disruption.
Military Deployment
The Epoch Times reports that the U.S. military is currently blocking more than 70 tankers from entering or leaving Iranian ports, which have the capacity to transport over 166 million barrels of Iranian oil worth an estimated $13 billion-plus. The blockade has been imposed since April 13, after the first round of peace talks between the United States and Iran ended without a resolution. Over 15,000 troops, more than 200 aircraft, and 20-plus warships have been deployed for the mission. The blockade puts pressure on Iran’s economy, as export revenues are its major source of income.
The UK and France are sending warships near the strait, according to The Epoch Times. On May 6, French Armed Forces deployed the carrier strike group on its nuclear-powered aircraft carrier, Charles de Gaulle, to the Red Sea and Gulf of Aden. On May 11, the British Royal Navy released a statement saying that the warship HMS Dragon is heading to the Middle East ahead of a potential multinational mission in the Strait of Hormuz. The Type 45 destroyer “will forward deploy to ensure the UK can contribute to a future multinational mission to secure the critical waterway and safeguard freedom of navigation, following a sustainable ceasefire,” said the Royal Navy. The HMS Dragon “can use her Sea Viper missile system to help safeguard UK assets and interests—assisted by Wildcats from 815 Naval Air Squadron equipped with Marlet missiles able to deal with the aerial drone threat.”
A few non-Iranian tankers carrying oil have exited the Strait of Hormuz with trackers switched off to avoid attacks from Iran. Two very large crude carriers, the Agios Fanourios I and the Kiara M, carrying two million barrels of Iraqi oil each, passed through the strait on May 10.
Analysis
Despite some previous hope that a memorandum of understanding could lead to a resolution of hostilities, President Trump rejected Iran’s response, and peace remains far away. Without a resolution, the supply shock caused by the closure of the Strait of Hormuz and blockade of Iran will continue for the foreseeable future, which could lead producers to look for new sources of supply. According to CNBC, Olivier Le Peuch, CEO of SLB, claimed that higher prices could make offshore and deepwater development more attractive in Africa, the Americas, and Asia. “Africa [represents] one of the most compelling long-term opportunities, with a significant base of underdeveloped oil and gas resources… We expect portfolio allocation to shift more favorably towards this region over time,” he said.
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