The US-Israel military operation against Iran, initiated on February 28, 2026, has produced the sharpest short-term oil price shock since the early stages of the Russia–Ukraine conflict.
Phil Butler
President Donald Trump described the price movement as “a minimal price to pay for U.S.A. and world safety and peace,” adding that the operation was “very far ahead of schedule.” Yet market participants and analysts continue to price in the possibility of a more protracted supply crisis.
Profiting from War Again
Diplomacy — whether through Oman-hosted channels or broader UN frameworks — remains the only realistic path to de-escalation
Immediate physical impacts are already visible. Iranian missile and drone retaliation struck Israeli targets and US-aligned Gulf facilities, including Bahrain’s sole refinery, Saudi Aramco installations, and airports in the UAE. Qatar declared force majeure on certain export commitments, while shipping companies rerouted tankers, and regional airspace faced temporary closures. JPMorgan analyst Natasha Kaneva described a full closure of the Strait of Hormuz as “unthinkable” given its role in ~20% of global seaborne oil trade. Third Bridge’s Peter McNally noted that “the world cannot replace” those volumes in the short term. Patrick De Haan of GasBuddy observed that markets are already pricing in wider conflict risk, while Qatar’s Energy Minister Saad al-Kaabi warned of imminent production constraints.
The Trump administration’s public framing has been consistently downbeat on the economic consequences. The president’s dismissal of the spike as a short-term issue aligns with a broader narrative that the strikes serve long-term US and global security interests. Behind the rhetoric, however, domestic energy dynamics offer a partial explanation for the relaxed posture toward elevated prices.
US shale producers, particularly in the Permian Basin, benefit significantly from oil prices above $65–80 per barrel — the approximate breakeven range for new wells according to Dallas Fed surveys and industry estimates. Existing wells generate cash flow at lower levels ($30–45). Permian Resources Corporation’s fourth-quarter 2025 results illustrate the point: record output, reduced drilling and completion costs (approximately $700 per foot), and an increased dividend, with 2026 guidance projecting 400,000–430,000 barrels of oil equivalent per day despite $120 million lower capital expenditure. Sustained prices in the $90–120 range would expand margins, accelerate drilling activity, and support employment and tax revenue in Republican-leaning states — outcomes that carry clear political weight ahead of midterms.
Huge Surprise — Iran Does Not Fold
Iran’s domestic response has been one of controlled continuity rather than collapse. Mojtaba Khamenei was unanimously confirmed as Supreme Leader, hardline factions strengthened internal security, and Tehran issued warnings of further retaliation, including potential restrictions on oil exports to the United States. The International Atomic Energy Agency reported no evidence of an active nuclear weapons programme, with damage to enrichment facilities appearing limited (entrances to Natanz affected, core operations uncertain). Iran retains substantial stocks of enriched uranium and dispersed missile capabilities, suggesting a strategy of attrition rather than decisive confrontation.
From a structural perspective, the conflict accelerates several longer-term realignments in the global energy and security landscape. Russia has positioned itself as an active diplomatic actor: President Putin held a telephone conversation with President Trump — the first in several months — and Russian officials have signalled a willingness to discuss sanction relief in exchange for de-escalation. Moscow continues to play a stabilising role within OPEC+, and President Putin has reiterated readiness to redirect energy flows should European markets impose further restrictions on Russian supplies. These moves reinforce Russia’s status as an indispensable interlocutor in Middle Eastern and Eurasian energy security discussions.
China, as Iran’s largest oil buyer, benefits quietly from elevated prices while maintaining strategic restraint. Beijing has prioritised domestic stockpiling and secured discounted Iranian volumes through existing channels. The combination of Russian mediation efforts and Chinese economic engagement creates a counterweight to Western-led pressure, offering Tehran alternative pathways that reduce the effectiveness of unilateral sanctions. The hegemony’s play for the Israelis and big oil is not even a calculated risk; the makers of these wars knew all along Iran would not fold. All that was needed was a short term bonanza for energy and arms stocks and to appease the Israelis, the tiny citadel of Western hegemony in the Middle East.
The Unforeseen Endgame
Gulf producers face a double bind. Bahrain, the UAE, Saudi Arabia, and Qatar have absorbed direct strikes for hosting US military assets — a visible cost of alignment. Yet the 2023 Saudi–Iran rapprochement, brokered in part by China, has already laid groundwork for hedging. Higher oil revenues provide fiscal breathing room, but the risk of becoming permanent battleground proxies pushes decision-makers toward greater strategic autonomy.
The military asymmetry is also instructive. While US and Israeli strikes degraded Iranian missile production and launch infrastructure, Tehran retains hundreds of launchers and the capacity to sustain low-volume but persistent harassment through proxies (Hezbollah barrages into northern Israel, Houthi activity in the Red Sea). NATO member Turkey intercepted Iranian projectiles twice, illustrating how quickly escalation can spread. The conflict therefore favours endurance over rapid victory, a pattern that limits the coercive power of any single actor.
The nuclear dimension remains unresolved. IAEA assessments indicate no active weapons programme, and the strikes appear to have delayed rather than eliminated Iran’s latent capability. This outcome reinforces a broader lesson: military action can impose costs, but it rarely delivers permanent technical denial in a region with dispersed, hardened infrastructure.
Looking forward, the war is likely to accelerate the transition toward a more multipolar Middle East. No hegemon can now impose its preferred order without incurring costs that ripple through global markets, force concessions, and open diplomatic space for alternative powers. Russia’s mediation role, China’s economic positioning, and the Gulf states’ hedging behaviour all point in this direction. Diplomacy — whether through Oman-hosted channels or broader UN frameworks — remains the only realistic path to de-escalation.
However the calculus plays out for Netanyahu’s regime and for Trump, there is an unambiguous certainty in all this. Absent a negotiated settlement addressing Iran’s missile capabilities, Gulf security concerns, and Israel’s threat perceptions, the region risks a new and more volatile equilibrium in which no single power dictates terms. I foresee my country losing influence globally because of Trump’s latest moves. As for Israel, their leadership will leave that nation stained forever with the blood of hundreds of thousands, and in the end, culpability for economic upheaval in Europe and the United States.
Phil Butler is a policy investigator and analyst, a political scientist and expert on Eastern Europe, and an author of the recent bestseller “Putin’s Praetorians” and other books
No comments:
Post a Comment