TRT-London asked me tonight about oil-market impacts of the deal between Iran and Oman. The title says most of it.
Of course there has been hardship globally with higher energy prices and volatility. However, compared to what would have happened 10 or 20 years ago, this is very significantly smaller.
Oil on average has been up only 25%, and refined products 36% since 28 Feb. (“Why Oil Prices Could Hit a Breaking Point by Year End,” WSJ, Video, 3aug26). Why?
The huge surplus in oil production that was building globally for at least three or four years, plus the constantly falling energy intensity of the economy, plus the high degree of interconnectedness of the one-global-barrel market (the name of this blog for the past 15 years) explains this relatively mild impact thus far. I explained this, and the geopolitical advantage, the long time line, it has given Trump and Washington to go slow and talk a lot as compared to the urgency they would have had earlier.
This is both a case of:
a) More oil being produced globally due to huge advances in petroleum and gas exploration and production (E&P) technologies,
Especially in the USA, where a new “Fracking 4.0” stage of the Shale Revolution seems to be underway, one that could boost extraction rates of previously drilled wells by factors of 50-300%, according to various industry tech reports. This is all about US high tech and perfecting of methodologies. (See, Javier Blas, “Shale Oil’s Next Revolution Should Worry OPEC” Bloomberg, 30Nov25).
In addition, there have also been significant tech improvements in deeper offshore production, and in exploration generally, leading to a lot of new, large-sized proven reserves to exploit And,
b) A continued decrease in energy intensity generally and in oil intensity in particular. Although the demand for oil continues to grow, and oil remains the largest source of consumed energy globally, the ratio of barrels of oil consumed to the world’s GDP value (in dollars) continues to fall.
The really big fall came in the mid-to-late 1970’s when the price jump due to OPEC nationalizations encouraged businesses to make the then-easy gains in energy use that were available (downsizing cars and improving gas mileage, etc.). Another big step change took place in the 1990s, when all the Soviet sphere states and China began replacing antiquated industry with more modern tech.The really big fall came in the mid-to-late 1970’s when the price jump due to OPEC nationalizations encouraged businesses to make the then-easy gains in energy use that were available (downsizing cars and improving gas mileage, etc.). Another big step change took place in the 1990s, when all the Soviet sphere states and China began replacing antiquated industry with more modern tech.
In any case, as I explain in the interview, the decreased importance of the Straight is undermining the value of Iran’s choke hold on Hormuz, and giving the USA much more time than it would have had in the past to explore deals.
However, in the end, the USA might decide there is not other solution than a military solution. This would be a huge clash, one that fortunately might not be necessary from Washington and their GCC allies’ points of view. While the GCC states, alarmed about Iranian missiles as revenge, have at least twice now convinced Trump to hold back from a massive bombing campaign, the USA has other interests beyond the Gulf he is constrained ot consider. In any future conflict in the Pacific, with China, Iran could choke off US Asian allies’ oil and gas supplies in solidarity with China. Japan, S. Korea, Taiwan, Australia and others are mostly much more dependent on these flows than is China. The USA would likely have to divert significant forces to reopen the Straights. So, if Trump et al can solve this problem, by diminishing or ending Iran’s capacity to ever do such a thing, it is worth it to Washington. However, as the value of Hormuz passage diminished, this need is somewhat reduced and, in my view, means that the USA might consider some deal where Iran has a minor capacity left to interfere with Hormuz oil and gas flows, especially as the importance of the flows themselves are becoming reduced.
We shall see. (For a talk, keynote, expert on-air commentary, consult or commissioned analysis: tomod.com(at)gmail.com)
The Global Barrel 