Hi friends,
On this issue of Iran and oil prices, several second-term policies really do reinforce one another, whether by original design or because the administration is successfully exploiting the opportunities created by earlier moves.
Let’s consider the pieces now sitting on the board.
A bigger strategy may be taking shape
It is easy to look at higher gasoline prices, Iran’s threats in the Strait of Hormuz, new sanctions, and tensions with China as separate problems. But put the pieces together, and a larger strategy begins to appear. The goal is not simply to punish Iran. It is to reduce Iran’s ability to hurt the United States and the world, strengthen America’s own position, and use that strength to make negotiation more attractive than continued confrontation. That won’t happen overnight. But several policies already underway reinforce one another in ways that give reason for cautious optimism.
1. The immediate problem: Iran is using a strategic weakness
About one-fifth of the world’s petroleum has historically moved through the Strait of Hormuz. That gives Iran enormous leverage. Threatening shipping can raise oil and gasoline prices, transportation costs and eventually the price of groceries and other goods.
Americans feel that pressure quickly.
The long-term answer is to remove the dependency that makes the threat so powerful. Not simply to threaten Iran more forcefully.
2. Reduce Iran’s leverage — and our own vulnerabilities
This helps explain Treasury Secretary Scott Bessent’s recent statement that within two years Hormuz could become far less important. Gulf countries are developing and expanding pipelines and export routes that bypass the Strait.
America is addressing the same principle closer to home.
Several second-term policies reinforce one another:
Energy: Increase U.S. oil and gas production and exports while encouraging nuclear development.
Hormuz: Keep energy moving now while Gulf countries build alternative routes.
Critical minerals: Reduce dependence on China for materials essential to defense and manufacturing, including the new $12 billion Project Vault initiative.
Industrial capacity: Rebuild U.S. or allied production of semiconductors, defense components, energy equipment and other strategic goods.
Iran: Target not only Iran itself, but the financial networks that keep its government functioning.
China and trade: Use America’s markets, tariffs and financial system as negotiating leverage.
Put those together and something larger appears:
Global trade is useful. Strategic dependency is dangerous.
America does not need to make everything. But during a crisis, we must retain access to critical things, either made in America or available from reliable allies.
3. Is oil actually moving through Hormuz?
There are two very different estimates.
U.S. officials say: Recent flows have sometimes exceeded 8 million barrels per day, with substantially more moving on some days. The U.S. military has surveillance capabilities commercial ship trackers do not, and some tankers are reportedly traveling at night with tracking equipment turned off.
Commercial tracking companies say: They can document considerably less — generally around 2–6 million barrels per day — and available export and import data do not yet fully support the government’s higher estimates.
The relatively restrained oil price lends some support to the idea that more oil is reaching the market than visible ship traffic suggests. If Gulf supplies were as severely constrained as the lowest numbers might imply, all else equal, we would normally expect stronger upward pressure on oil prices. But price alone cannot prove how many barrels crossed Hormuz; markets also respond to inventories, alternative supplies, expectations and hopes for de-escalation.
The important point is that Iran has not succeeded in completely choking off world oil supplies.
4. Now use America’s leverage — carefully
Iran needs buyers, ships, insurers, banks and ways to move money.
China is especially important because it has been Iran’s largest oil customer.
That gives Washington another option besides military force: tell companies and banks doing business with Iran that they may jeopardize their access to America’s much larger financial system.
But the strongest threat does not have to be used immediately.
Washington can start with traders, shippers, small refiners and intermediary companies before threatening major Chinese banks.
That is important because a credible threat can itself be a negotiating tool.
Warning → credible consequence → negotiation → changed behavior
can be far better than:
Sanction → retaliation → escalation → economic damage for everyone.
Treasury itself has long recognized that sanctions work best when they are tied to a clear objective, carefully calibrated, coordinated with allies and reversible when behavior changes.
In other words: don’t cry wolf.
Use America’s financial power when it matters, and make the other side believe the threatened consequence is real.
5. There must be an off-ramp
The purpose should not be economic destruction for its own sake.
Iran — and countries helping it — need to understand both sides of the proposition:
Continue this behavior and the cost increases. Change the behavior and the pressure can decrease.
There is historical evidence that this approach can work. Earlier coordinated sanctions against Iran severely restricted oil revenue, banking and access to foreign currency and helped bring Tehran into nuclear negotiations. People disagree about whether the resulting 2015 agreement was good; the narrower point is that economic pressure created negotiating leverage.
6. Why patience matters
This is delicate.
Too little pressure and the threat becomes meaningless. Too much can provoke retaliation, hurt Americans through higher energy prices, damage trade or encourage countries to build financial systems that bypass the dollar.
And rebuilding strategic independence takes time.
Pipelines, mines, nuclear plants, refineries, factories and supply chains cannot appear overnight.
But that may be the larger strategy taking shape:
Protect ourselves. Reduce adversaries’ leverage. Build our own strength. Apply pressure selectively. Provide an off-ramp. Negotiate from strength.
Economic leverage can move quickly. Strategic independence cannot.
The encouraging part is that both can be pursued at the same time.
Sources:
Treasury — 2021 Sanctions Review — particularly useful because it lays out the established principles for successful sanctions: clear objectives, calibration, allies, enforceability and reversibility.
Bessent interview — Hormuz becoming “irrelevant” and pipelines replacing much of its traffic
Wall Street Journal — disagreement over how much oil is actually moving through Hormuz
As always, do your own research and make up your own mind.
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