Before Trump started his Republican-enabled war with Iran, cargo ships could move freely through the Strait of Hormuz without paying massive tolls or fees. Today, that is no longer the case. Still, energy markets didn’t react to that development as strongly or as negatively as you might have expected, largely because the attitudes in those markets were that we’d see a quick resolution to hostilities. However, those attitudes are beginning to shift, with energy market analyst firm Rapidan Energy Group issuing a statement that basically says, “Never mind on that whole ‘quick return to the status quo’ thing.”
It isn’t just that Rapidan expects the strait to remain closed longer than previously predicted, either. As it said in its statement, “Hormuz disruptions will be deeper and more persistent than we previously expected, materially tightening global oil balances through 2027.” That’s not so bad, though, right? January 1, 2027 isn’t that far away. It’s past the midterms, sure, but we can make it another five or six months. Except, once you read past the first line, it’s clear that “through 2027” really does mean “through all of 2027.”
According to Rapidan, it can “no longer assume a near-term return to freedom of navigation through the Strait of Hormuz.” In light of Republicans’ failure to negotiate a lasting peace deal during the temporary ceasefire agreement and a return to open war, the analysts say to “expect ongoing military risks to constrain vessel transits through the Strait well into next year, keeping Arab Gulf production below pre-conflict levels through 4Q27.” That’s one year longer than their previous prediction, and probably not such great news for anyone frustrated by high gas prices. Maybe try again in 2028?
Bullish for crude prices
Rapidan concluded its statement saying it planned to update its global inventory forecasts in an upcoming July oil market report, telling investors its “crude balance now shows inventory draws through year-end, which is bullish for crude prices.” So at least rich traders won’t have to worry about being forced to sell one of their pieds-a-terre to afford their kids’ boarding school tuition. It’s one thing for regular people to struggle to put gas in their cars, but inconveniencing the wealthy would be a step too far.Â
Speaking to the future, Rapidan CEO Bob McNally recently retweeted a clip from an interview back in March, where he outlined the three possible scenarios for what’s essentially the Third Gulf War. With the ceasefire no longer an option, McNally said to expect the U.S. (and any allies that decide to join us) to focus on efforts to “degrade Iran’s ability to disrupt traffic” through the strait and “get attacks down to a reasonable level” so the military can escort ships through. If the U.S. is unable to achieve that, “the oil price will continue rising up until we discover the new level that induces an economic downturn.”
At the time, McNally didn’t say how expensive he thought oil would get, but he did say, “It’s a lot higher than the old highs, though,” adding that if the previous record for oil prices was $147 a barrel, he sees prices climbing into the $200 range. If that were to happen, experts have previously predicted the U.S. would likely see average gas prices between $6.50 and $7.00 a gallon.
While it currently doesn’t cost $140 to fill a 20-gallon tank, gas is back over $4 a gallon nationally and diesel is over $5 for the second time this year. That’s something GasBuddy’s Patrick De Haan pointed out has never happened before in the U.S. Gas prices were still higher back in 2022, after Russia invaded Ukraine, but we’ve never seen gas cross $4 a gallon, drop back into the $3 range, and then climb above $4 again in the same calendar year. If that’s not winning, I don’t know what is.
