Absolutely. Russia is arguably the biggest winner from this situation. Until now, US sanctions have made it more difficult to bring Russian oil onto the world market. Now the Trump administration is creating an avenue that effectively allows Russia to sell more oil to limit pressure on global oil prices. Because of the situation in the Middle East, Russia can not only sell much more, but also at much higher prices. Large quantities, at high prices – that means an important source of income for Putin, including for his war against Ukraine.
Back to the US: There is a third approach that the government is talking about. Trump’s Interior Secretary Doug Burgum has proposed increasing oil production in the United States. What would that bring?
Free market laws apply in the United States. The White House has virtually no direct control over oil production. In contrast to many OPEC countries, there is much less government control over production volumes in the USA. This means that oil companies do not necessarily react immediately to market changes because these can be very volatile. If the situation in the Strait of Hormuz suddenly eases tomorrow, companies could be stuck with investments they previously made to increase production.
The US government has little influence on massively increasing oil production within a short period of time.
Patrick DeHaan
So when the Interior Minister says that we simply have to produce more oil, doesn’t that automatically mean that production will increase significantly in the coming weeks?
Exactly. This is more of a political statement and a pure assertion. But this has no factual basis. The US government has little influence on massively increasing oil production within a short period of time. If oil prices remain high over the longer term, production will probably increase gradually. But only because companies then react to the higher prices.
President Trump has urged companies to resume using the Strait of Hormuz while offering military protection. Can this work?
Military protection can even create additional dangers. Iran has made it very clear that it would attack American ships in the Strait of Hormuz. A military escort could therefore draw even more attention to the transport ships and put them at greater risk. To truly reduce the threat, the US would have to deploy very extensive military resources in the region. The President has spoken of military protection, but the US Navy is apparently not capable of doing so at the moment. The promise of insurance or government guarantees is ultimately more of lip service.
