Trump has 1 week to release Middle Eastern oil before price soars

President Donald Trump’s pledge to secure and escort oil and gas ships moving in and out of the Middle East has kept price increases in check for now, but he has about a week to show concrete progress before commodity prices spike again, energy analysts and legal experts said.

Creating an emergency government-subsidized insurance system for many hundreds of oil tankers is complicated enough, but also protecting them against missile and drone attacks adds another huge layer of uncertainty, experts said.

“If this isn’t resolved within a week, crude oil markets will become skeptical and impatient, which will translate into higher prices,” said oil analyst Dan Pickering, founder of consultancy and research firm Pickering Energy Partners. “This is a feedback loop that would put more pressure on the United States government.”

About 20% of global crude oil and liquefied natural gas (LNG) flows pass through the narrow Strait of Hormuz, which is effectively blocked because of the war in Iran.

Qatar has already halted its LNG production, and Iraq has suspended much of its oil production because it lacks domestic storage capacity. It is only a matter of time before more energy-producing Gulf states follow suit.

And resuming production is a process that takes weeks to gain pace. Under normal circumstances, around 150 vessels pass through the strait every day. Now, you can count them on your fingers.

Most private insurers will not offer coverage alone when faced with such a high risk profile. Several oil tankers have already reported damage in the region. For any insurance still available, prices have risen to nearly five times their previous value.

“The objection is: Even if you have the insurance, will you feel protected to do this?” Pickering said. “If there are escorts, how do we know if it will work and if it will be possible to prevent drone attacks?”

Still, because of the United States’ focus on energy affordability, it appears to be a question of when — not if — oil tankers will move freely through the strait again, he added.

Trump said the United States would provide “political risk insurance” for oil tankers and, “if necessary,” use the Navy to escort vessels through the strait.

The US International Development Finance Corporation (DFC) said it is “ready to mobilize” its collateral and political risk insurance products, but declined to offer details or timelines.

White House press secretary Karoline Leavitt said March 4 that DFC will provide insurance at a “very reasonable price” and that “if necessary and when appropriate,” naval escorts will be utilized.

Although Iran’s Islamic Revolutionary Guard Corps has claimed to have “full control” of the strategic shipping lane, Leavitt countered: “Iran will no longer be controlling the Strait of Hormuz nor restricting the free flow of energy.”

“I don’t want to commit to a timeline, but certainly this is something that is being actively calculated by both the Department of War and the Department of Energy,” Leavitt said.

How this might work

There are many lives and billions of dollars at risk here, so it will take time to set insurance premiums and specific terms and conditions, said Özlem Gürses, a professor of maritime and insurance law at Tulane University Law School.

The government can take a similar approach to what it took with terrorism insurance after the 9/11 attacks, structuring public-private partnerships with subsidized government financial support for businesses to keep insurance premiums relatively lower, he said.

“The risk is so big that it’s really difficult to estimate,” Gürses said of possible timelines for implementing everything. “There are a lot of questions.”

Premiums will still be expensive because it is war risk insurance, so the key question is whether they can be made affordable enough to justify the cost and security risk, she said.

The large shipping company Maersk, for example, has already stated that it is temporarily suspending cargo reservations in the Middle East.

Amena Bakr, head of Middle East energy analysis at Kpler, said the firm’s energy trading experts “don’t think Trump’s idea of ​​escorting vessels will work, as the ships will be highly exposed to Iranian missiles. And even if they do manage to escort them, the cost will be too high.”

But more international support may be on the way. French President Emmanuel Macron said on social media that a coalition is being formed “to pool resources, including military, in order to resume and protect traffic on these maritime routes that are essential for the global economy.”

Meanwhile, natural gas prices in Asia and Europe — highly dependent on supplies from Qatar — have hit multi-year highs, while global crude oil prices have risen nearly 35% this year. The U.S. national average for a gallon of regular unleaded gasoline jumped from a low of $2.73 in early January to $3.20 in March — and continues to rise every day.