Oil prices, fuel to put a stop to war?

Oil prices have finally boiled over. The world economy has lost more than a day's worth of oil supply as the Hormuz Strait, through which 20% of global oil passes each day, remains shut. Investors accustomed to short spikes in energy prices due to geopolitical tension are now staring at production cuts in the Persian Gulf. Iraq and Kuwait have followed Qatar in shutting down energy infra vulnerable to Iranian strikes. Israel and the US must factor in the likelihood of a swift end to the war in West Asia receding.

Energy-importing nations are deploying strategic reserves where available while they tap into alternate sources of supply. Exporters of refined petroleum, including India, have the option of dialling down overseas sales to keep prices in check at home. China, with the world's largest strategic reserves, has instructed its refiners to suspend exports. As national interests take over the oil trade, the war acquires a truly global dimension. Australia, for instance, imports almost all its petrol, diesel and jet fuel from refineries in Singapore, South Korea and Japan that principally process crude from the Persian Gulf.

The US exports both crude oil and refined petroleum. Yet, prices have started climbing at fuel pumps before the latest surge in crude prices. Inflation in the US is running above target, and the bond market is moving in anticipation of the US Fed turning hawkish on interest rates. That will not go down well with Trump's agenda to fight a limited war. A limited energy shock may, however, provide him with whatever outcome he chooses to declare 'victory' on social media. After all, there was no final objective set out in the US attempt at 'regime change from air'. The endeavour will become significantly more difficult for Trump if he has to commit boots on the ground.