On Friday, reports suggested the Trump administration is actively considering tapping the Strategic Petroleum Reserve in order to drive down prices at the pump ahead of the November midterms.
“The national unleaded average gasoline price rose to $2.89 Friday, an increase of 63 cents from where it was a year ago,” Bloomberg wrote, adding that “a release of crude oil in September or October could cut gasoline prices for consumers ahead of November mid-term elections.”
As a reminder, Trump’s own policies are at least partially responsible for rising crude prices. His hardline stance on Iran is adding to supply jitters at a time when Venezuela is rapidly descending into failed state status. Although he did manage to badger the Saudis into marshaling support within OPEC and with Russia for a production hike in the back half of the year, the threat of lost Iranian barrels has largely offset the cartel’s promise to increase supply – or at least in the mind of the market.
So, with angry phone calls to King Salman having failed to arrest rising prices and with oil stubbornly refusing to listen to all-caps tweets, Trump is apparently pondering the relative merits of effectively declaring a national emergency in the interests of tapping the SPR in the interest of political expediency.
The irony is that this comes during a week in which U.S. crude suffered its largest one-day decline in more than a year amid a broader selloff in commodities. That was the direct result of the latest escalation in the trade tensions and seemed to suggest that traders are now concerned that a trade-related downturn in global growth could lead to across-the-board demand destruction.
Still, the consensus seems to be that even if the Saudis are able to make up for lost Iranian barrels, the required production increase would stretch spare capacity to the point where Riyadh would have difficulties in responding to further supply shocks. The latest monthly report from OPEC showed Saudi Arabia boosting production substantially in June.
South Korea and Japan have reportedly stopped taking Iranian crude in lieu of waivers from the Treasury department and it now appears as though the U.S. is prepared to ratchet up the pressure.
“Secretary of State Michael Pompeo and Treasury Secretary Steven Mnuchin rejected a request from European leaders for broad-based waivers from sanctions the U.S. will reimpose on countries that do business with Iran”, Bloomberg reported after the bell, citing a letter to finance and foreign ministers of the U.K., France and Germany.
The U.S., Mnuchin and Pompeo said, is determined to apply “unprecedented financial pressure” on Tehran and that pressure will not abate until the Trump administration sees what it’s describing as a “tangible, demonstrable and sustained shift’’ in Iran’s behavior.
As ever, it isn’t clear what would constitute a “tangible” and “demonstrable” shift, but based on sanctions leveled against Hassan Nasrallah and Iran’s central bank governor, Washington is looking for a curtailment of the Quds’ regional activities in Syria, Iraq and Yemen. Simply put: Trump can forget it. It’s not going to happen.
This will always be couched in terms of Iran’s nascent nuclear program, but the real issue is the influence of the Quds in regional politics and conflicts, influence which has grown in recent years.
In response to a plea from France, Germany and the U.K. with regard to their expectations of sweeping exemptions, Pompeo reportedly responded as follows:
We are not in a position to make exceptions to this policy except in very specific circumstances where it clearly benefits our national security.
In other words: there will be no exemptions.
On Thursday, Pompeo tweeted the following, in a rather transparent attempt to suggest that the Quds are the worry when it comes to international terrorism, a spurious claim in light of the fact that it is Sunni extremism that has plagued the West.
We ask our allies & partners to join our economic pressure campaign against #Iran’s regime. We must cut off all funding the regime uses to fund terrorism & proxy wars. There’s no telling when Iran may try to foment terrorism, violence & instability in one of our countries next. pic.twitter.com/XHxd3EPaBP
— Secretary Pompeo (@SecPompeo) July 12, 2018
As you can see, he’s basically raising the specter of the Qassem Soleimani bogeyman for the thousandth time. Here’s what Pompeo told The National in an exclusive interview earlier this week:
Qassem Soleimani is causing trouble throughout Iraq and Syria and we need to raise the cost for him – for his organization and for him personally.
Soleimani, right, with Supreme Leader Ayatollah Ali Khamenei while attending a religious ceremony in a mosque at his residence in Tehran, Iran, March 27, 2015
Not to put too fine a point on it, but that is a lost cause. Soleimani is a ghost story; a larger-than-life figure in the Mideast. His fingerprints have shown up on everything from Putin’s intervention in Syria to the infamous kidnapped Qatari falconry party that purportedly helped spark the Qatar embargo last year, to the rather embarrassing seizure of Kirkuk.
There simply isn’t anything that can be done and if there is, it’s not going to be accomplished with sanctions on Iranian crude.
In any event, this is ostensibly bullish for oil prices, which means Donald Trump will need to try even harder when it comes to driving down prices at the pump in the months ahead.