New York —
The world economy is being held hostage by the de facto closure of the Strait of Hormuz.
Gasoline, jet fuel and diesel prices have skyrocketed. Stock markets have tumbled, and recession odds have climbed.
After weeks of trying and failing to reopen the critical waterway off the coast of Iran, President Donald Trump has floated a new idea: walk away and let others clean up the mess.
Trump told the New York Post on Tuesday that the Strait of Hormuz will “automatically open” after the US military exits the war. “Let the countries that are using the strait, let them go and open it,” Trump told the paper.
Trump has told aides he’s willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed, The Wall Street Journal reported on Monday.
“Go get your own oil!” Trump wrote in a Truth Social post on Tuesday.
Trump told reporters later in the day that gas prices, which hit $4 a gallon for the first time since 2022 on Tuesday, would come down soon. “All I have to do is leave Iran, and we’ll be doing that very soon, and they’ll be come tumbling down,” he said.
Yet energy market experts tell CNN that ending the war without reopening the Strait of Hormuz is unlikely to fix the energy crisis.
“It’s a terrible idea,” Dan Pickering, founder and chief investment officer at Pickering Energy Partners, told CNN in a phone interview. “This would be a job half-finished that creates more long-term problems than it solves in the short term.”
While a US exit could cause oil prices to tumble in the near-term, Pickering said he’s “afraid” the world will ultimately pay much more for crude if a “bad actor” like Iran is left in control of the Strait of Hormuz.
“It’s hard to see how throwing in the towel in the strait solves anything. It would basically be surrendering the strait to Iran and guaranteeing higher energy prices because Iran would be free to attack vessels and charge tolls,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a phone interview on Tuesday. “It would be a catastrophic failure.”
It’s possible that Trump floated the idea to persuade allies to step up support to reopen the chokepoint, or even as a head fake before a potential US ground invasion.
Some investors dismissed the talk of the US exiting without reopening the Strait of Hormuz.
“This doesn’t add up. It’s a petulant outburst, kind of like crossing your arms when your mom says you can’t go to a party,” said Art Hogan, chief market strategist at B. Riley Financial.
Oil market veterans stress that the supply disruption – the biggest on record – requires a resolution to the effective shutdown of the Strait of Hormuz, through which about a fifth of the world’s oil typically flows.
“There is no way to tilt the scales of global economics and pretend it’s not a problem,” said De Haan.
It’s true that the United States is more insulated than countries in Asia and Europe, which more directly rely on the Strait of Hormuz for oil.
That’s in part because the United States is the biggest oil producer on the planet, pumping an all-time record of 13.6 million barrels per day last year.
However, the United States is not an island unto itself. Supply disruptions thousands of miles away from middle America are being felt by consumers at the gas pump.
“We’re inextricably linked to the global price,” said Vikas Dwivedi, global oil and gas strategist at Australian investment bank Macquarie Group.
US refiners don’t rely on domestic oil alone to churn out the gasoline, jet fuel, diesel and other energy products that power the economy. Those decades-old refiners typically blend the very light US oil with heavier crude pumped overseas.
Hundreds of thousands of barrels of foreign oil are imported into the United States each day, mostly along the East and West Coasts.
And to meet intense internal demand, the United States imports significant amounts of gasoline, jet fuel, diesel and other energy products.
“Both California and the New York region depend on product imports and will therefore face shortages once Asia and Europe begin to face them,” said Claudio Galimberti, chief economist at research firm Rystad Energy.
If the Strait of Hormuz remains mostly closed, buyers in Asia, Europe and elsewhere are likely to turn to US barrels.
The 40-year ban on selling US crude overseas was lifted in late 2015, allowing US oil exports to spike from around 400,000 barrels per day then to about 4 million now, according to federal data.
However, analysts caution that higher foreign demand could lift US energy prices domestically, further eroding the discount that US oil currently trades at.
“US producers aren’t going to say, ‘We can’t give you the oil because we need to keep prices cheap here in the US.’ They will sell that barrel to them every time,” said Bob Yawger, commodity specialist at Mizuho Securities.
If Iran keeps control of the Strait of Hormuz, investors would continue to view the trade chokepoint as dangerous and uncertain.
To compensate for that risk, they’d demand an extra return — known as a geopolitical risk premium — that would keep upward pressure on prices around the world, including at US gas pumps.
“There would be a significant geopolitical risk filtering through the market because Iran could do it again,” said Andy Lipow, president of US-based consulting firm Lipow Oil Associates.
Perhaps all of this explains why Trump signaled as recently as Monday morning that reopening the Strait of Hormuz is a major priority.
In a Truth Social post on Monday, Trump said that if the “Hormuz Strait is not immediately ‘Open for Business,’ we will conclude our lovely ‘stay’ in Iran by blowing up and completely obliterating all of their Electric Generating Plants, Oil Wells and Kharg Island (and possibly all desalination plants!)”
Bob McNally, president of Rapidan Energy Group, said that if the United States walks away from the Strait of Hormuz and leaves Iran in charge, there could be a relief selloff in oil prices. But it would not be a permanent one.
“It doesn’t end the crisis,” McNally said.
Events on the other side of the planet are causing financial pain for Americans at home. Leaving the Strait of Hormuz in a precarious state risks ignoring that painful lesson.
“Everybody involved can say whatever they want and declare victory,” Macquarie’s Dwivedi said, “but until the Strait of Hormuz opens, the problem will just keep building.”
