Trump’s aspiration to control the oil market finds out the lack of an alternative to Hormuz

With US military operations in Venezuela and Iran, Donald Trump aimed to control oil production in both countries and, presumably, establish himself as an arbiter of global output and prices, and as someone capable of dictating supply to his competitors. The oil blockade of Venezuela and the attack to remove Maduro from Caracas achieved their objectives, but in Iran, regime change has not been replicated, and this failure has highlighted something Trump hadn’t anticipated: the vulnerability of the Strait of Hormuz due to the lack of an alternative route for exporting hydrocarbons from the Persian Gulf. Trump has discovered that he doesn’t hold all the cards, as he perhaps thought.

President Trump tried to reshape the global status quo with the intervention in Venezuela and the escalation into war with Iran. Nevertheless, the impact of US foreign policy isn’t limited to geopolitics. Both events have been explicitly guided by, and have significantly influenced the international economic situation; particularly the oil and hydrocarbons market. The effects of which are already being felt across the world, with apparently uninvolved countries like Vietnam or South Korea already implementing measures to protect their domestic economies from the fallout of the emerging oil crisis. The consequences of the conflict in the Middle East, which is directly affecting a geographic point through which around 20% of global oil passes through daily, can very easily disrupt the global economy in the long term; especially if the involved parties continue to directly use attacks and disruptions to energy infrastructure as a core part of their strategy.

The OPEC Reference Basket, a weighted average of benchmark crude oil prices produced by OPEC member countries, registered a slight increase in barrel price in February following Trump’s intervention in Venezuela, and a very sharp spike in March due to the ongoing conflict in the Persian Gulf: the basket price jumped to a maximum of $146.05 that month. The situation continues to develop and remains very volatile, but it is possible to extrapolate some conclusions and predictions for the international energy market, and by extension, global economic stability from the events that have already concretely occurred in both Venezuela and Iran.

Venezuela

On the 3rd of January the Trump administration launched a military operation which removed the government of Nicolas Maduro and installed a cooperative administration under Delcy Rodríguez. Since the start, the US administration made it explicit that part of the strategic reasoning behind its actions is the control of Venezuela’s significant but outdated oil industry and use it to achieve both domestic and international economic and political goals. Namely, lower domestic oil prices to $50 per barrel and economically pressure energy markets in favor of American interests and in detriment of hostile states such as Cuba and Iran, and affecting the geopolitical calculus of Russia and China.

As such, one of the first actions of the Trump administration has been to ‘negotiate’ with the new interim government for access to US companies and investment into the Venezuelan oil market as well as US ‘oversight’ over policy and export revenues. This intervention into Venezuela’s oil economy is articulated through the US Treasury’s Office of Foreign Asset Control which has issued a series of ‘general licenses’ that allows US firms to market Venezuelan oil internationally, import into Venezuela goods and services necessary for oil extraction, as well as invest into new and preexisting oil and gas infrastructure in Venezuela.

While the Trump administration states that the sale of this oil must be done at “commercially reasonable terms” in the international market, and that the revenue of these sales which are going to be deposited on a US managed account will be “spent transparently and for the benefit of the Venezuelan people”, this economic plan seems very transparently in the primary interest of the US. Strategically, the vast reserves of underexploited Venezuelan oil could serve as a means to counteract the medium and long-term consequences of the contraction in supply within the US and international markets caused by the ongoing conflict in the Persian Gulf. This already seems to be part of the US administration’s plan since on March 18th the US Treasury further eased sanctions on Venezuelan oil and authorized PDVSA to sell oil directly to the US market, and Trump announced a 60-day freeze on Jones Act to facilitate importation of oil to the US.

Nevertheless, the reality of oil and gas extraction, processing and exportation is that it is a process which requires large amounts of investment into specialized infrastructure and technical expertise which need long periods of time to develop and scale economically. As such, control over Venezuela’s oil has had little to no effect in mitigating the shock and immediate short-term effects of the war in the Persian Gulf.

Middle East

The conflict in the Persian Gulf has had catastrophic consequences for the gas and oil markets internationally because not only does it directly affect some of the world’s largest oil and gas producers, but also, actively has prejudiced and blocked the Strait of Hormuz, which is the main trade artery through which these states export their energy production to the global market.

To illustrate the consequentiality of the situation, Saudi Arabia is the world largest producer of crude oil, exporting $187 billion in revenue from crude oil alone in 2024 and not including refined oil and other oil-derived goods such as chemical products which accounted for well over $40 billion. The UAE, likewise, exported $114 billion worth of crude oil the same year, and over $60 billion worth of other hydrocarbon goods such as petroleum gas and refined oil. Bahrain, for its part, is a major exporter of processed oil and gas products obtaining $5.49 billion revenue from refined petroleum products. In a similar vein, Qatar is a major exporter of the third largest known reserve of natural gas in the world as well as producing around 1.746 million barrels of crude oil per day. On the other side of the conflict, Iran is likewise a major producer of oil and natural gas, having the second largest natural gas reserves in the world after Russia; it is a major exporter of petroleum derived products exporting $1.88 billion worth of ethylene polymers alone in 2024.

All these figures highlight the importance of the gulf states not only directly in the international energy market, but also in the wider global economy as they export substantial quantities of energy and petroleum goods critical for manufacturing nations such as China, India, the US and European states; the disruption of which would have far-reaching consequences. The nature of the current globalized economy has made it so that disruptions to critical points in global production chains in one part of the world have magnified and substantial consequences for economies across the globe. This is already being observed throughout the ongoing conflict in the Persian Gulf.

Hormuz

The US and Israel started their military campaign against Iran the 28th of February. After going after political and military targets, they opened fire against energy infrastructure. On the 18th of March Israel attackedIranian gas facilities in the South Pars gasfield, a massive natural gas field shared between Iran and Qatar. In response, Iran launched a series of drone strikes on Qatari and Emirati gas infrastructure which dealt significant damage to storage and processing facilities. According to Qatari and QatarEnergy authorities the attack destroyed 17% of Qatar’s liquified natural gas production capacity (equivalent to 12.8 million tons per year of LNG) costing around $20 billion in lost annual revenue. This attack is already having concerning long term consequences for countries dependent on energy imports since QatarEnergy has already invoked majeure on long term LNG contracts with countries such as Italy, Belgium, South Korea, and China.

In a similar vein Iran’s closing of the Strait of Hormuz by attacking shipping vessels has devastating consequences for the wider global economy in the long, medium and short term; especially if the conflict prolongs itself. Around 20% of the world’s LNG and 25% of global oil exports passes through the strait annually. Additionally around 80% of Qatar’s and UAE’s LNG exports go into Asian markets and 20% to Europe. This is particularly concerning since the partial or total closing of the strait seems to be a core element of Iranian strategy to pressure the US and gulf states into favorable terms. This is exemplified by the intended Iranian strategy of implementing a toll system to allow neutral or sympathetic states’ ships to pay for passage, while hostile or ‘unapproved’ vessels are targeted.

If the conflict prolongs for longer, the closing of the Strait would have devastating effects. Particularly, on the energy import dependent Asian and European countries, specially, national economies already strained from the crisis caused by the sanctions on Russian energy exports post-2022. Currently, states and international organizations like the International Energy Agency have begun implementing stop-gap and mitigating measures in order to offset and mitigate the impact of the crisis. At the beginning of the conflict 32 member states of the IEA agreed to release 400 million barrels of oil from the emergency reserve in order to dampen the impact on oil prices of the crisis, in a similar vein to what was done in 2022. Additionally, the IEA is advisingstates to implement measures to lessen demand for energy and oil-derived goods. Such as reducing speed limits in roads and highways, further encouraging public transportation, increasing remote/at home work, or reducing air travel. Yet, these measures are only temporary and can only limit or reduce the consequences on the energy and oil market, they can’t function as permanent or long-term solutions to the crisis if the conflict continues for the coming months.

No alternatives

On the supply side of the issue, the Gulf states are trying to secure and develop alternative routes to export. While due to the nature of the geography of the area, some states like Kuwait or Qatar are simply not able to find alternatives, others like Saudi Arabia, Iraq or the UAE are currently able to utilize existing oil pipelines in order to export hydrocarbons to the wider global market. Recently, Saudi Arabia restored capacity to its East-West pipeline which had been attacked by Iran earlier in the conflict. The pipeline is able to transport crude from the oilfields in the Gulf to the port of Yambu in the Red Sea, allowing Saudi Arabia to bypass the Strait of Hormuz making it a critical piece of energy infrastructure.

The UAE can make use of the Habshan–Fujairah pipeline which is able to transport crude oil from facilities in Abu Dhabi to the port of Fujairah on the Gulf of Oman, likewise, allowing to bypass the Strait directly. Another alternative is the  Kirkuk–Ceyhan oil pipeline operated by Turkey and Iraq, which transports oil from the oil fields in Kirkuk to the Mediterranean port of Ceyhan. Nevertheless this route has been a major target for sabotage throughout the decades of conflict in the area, making it necessary to repair and revamp it in order to make exportation through it viable again.

However it is important to highlight that at their current capacity none of these alternative routes are able to even begin to offset the hit to global supply from the closing of the Strait of Hormuz, as their combined carrying capacity is of 9 million barrels per day, compared to the approximately 20 million that passed through the strait.

Three takeaways

Due to the nature of the leadership on both sides the conflict making reliable predictions of possible outcomes is exceedingly difficult. Nevertheless, based on what has already occurred and based on previous experiences, it is possible to extrapolate some conclusions if the conflict continues in the coming months.

First, the US will try to leverage the success of the Venezuela policy to offset the costs and repercussions of their actions, and apparent failure, with Iran. This is already evident in both explicitly stated policy goals as well as the aforementioned seemingly accelerated easing of restrictions on the Venezuelan oil industry’s ability to export oil into the US, as well as the administration’s eagerness to encourage US investment into the country.

Second, the shock to the oil market caused by the blockading and closing of the Strait of Hormuz will push both oil exporting states and oil import dependent states to find alternative export routes and trade redundancies that are less vulnerable to external actors as well as alternative sources of energy; as can be seen with the new interest in restoring and expanding infrastructure like the Kirkuk–Ceyhan pipeline.

Third, in the wider context of the 2022 energy crisis caused by the Russian invasion of Ukraine, attacking energy infrastructure and utilizing instability to manipulate prices might become a more present strategy for international actors seeking to change the global order. This can be seen with the apparent benefits states like Russia have seen from the origin conflict in Iran and the looming energy crisis, with higher revenues from oil and petrochemical products.