The United States and Iran are heading toward a resumption of war despite growing hopes this week that Democrats’ decisive victory in the midterm elections would end the conflict, analysts say.
Crude oil prices have fallen more than 16% in the past five trading days after US Vice President JD Vance publicly blamed Republican officials for the war. Vance’s remarks raised questions about whether the administration still has support for continuing the conflict with Iran.
Democrats plan to use their comfortable majorities in both houses of Congress to pass a war powers resolution demanding that President Donald Trump end the war. But tensions in the Middle East have not eased since the elections, and Democrats won’t be sworn in until January, analysts say.
“Throughout the week, we were struck by the divergence between growing escalation concerns in the Gulf and the optimism of market participants thousands of miles away,” Helima Croft, head of global commodities strategy at RBC Capital Markets, said in a note to investors Friday.
More attacks
On Saturday evening, US Central Command said it had disabled a St. Kitts-flagged ship after the tanker ignored multiple warnings and attempted to leave the region after visiting an Iranian port, according to media reports. Iranian state media also reported explosions on the island of Qeshm in the Strait of Hormuz, as well as several explosions at the port of Jask. CNBC could not independently confirm this information.
Several oil tankers have also been attacked near Oman since the elections, killing one sailor, according to maritime security agencies. Iran’s Houthi allies in Yemen continue to fire missiles into neighboring Saudi Arabia.
Meanwhile, the U.S. military buildup continues, with a third carrier strike group en route to the region. Consulting group Rapidan Energy estimates there is an 80% chance fighting will resume as diplomacy stalls.
Trump told reporters Thursday that he would soon make a decision on whether to attack Iran again.
“I would rather not destroy the rest of the country if possible, but I might have to,” Trump said in the Oval Office. “You’ll know soon enough.”
“We are locked and loaded,” the president said. “If we have to deal with the rest of the Iranian file, we will be totally blocked.”
Price risk
Crude oil prices will rise above $100 a barrel again in response to renewed fighting, said Bob McNally, president of Rapidan and a former energy adviser to President George W. Bush. Brent crude, the international benchmark, was trading above $97 on Friday, while U.S. crude was around $90.
“President Donald Trump is determined, as a legacy, to prevent Iran from obtaining a nuclear weapon at almost any cost, by making it give up its nuclear capabilities,” McNally told CNBC’s “Squawk Box Asia” on Friday.
“The Iranian regime, on the other hand, is not willing to do this,” the analyst said. The dynamic of escalation will remain in place as long as the fundamental difference between the United States and Iran persists, he said.
The risk of war is still present, especially since Trump no longer faces a future election, said Amos Hochstein, a former energy adviser to President Joe Biden. As a result, prices for gasoline, diesel and jet fuel would all increase, Hochstein said Friday on CNBC’s “Power Lunch.”
Iranian taunts
Tehran has been taunting the Trump administration since the elections. Iranian Supreme Leader Mojtaba Khamenei’s social media account said “the process of the collapse of the United States has accelerated” after the midterm results.
And Congress is unlikely to pass a war powers resolution before Democrats take control in January. Trump can veto such a resolution anyway.
The main lever Congress will have is the power of the purse, Croft said. Government funding expires Dec. 11 and negotiations for another continuing resolution could drag on until 2027, she said. That would give Democrats more leverage when they take power in January, the analyst said.
“Importantly, delaying funding decisions would not immediately limit Trump’s ability to conduct military operations, but could significantly reshape the administration’s long-term funding outlook,” Croft told investors.
Trump discussed diplomatic efforts to defuse tensions in the region with Qatar’s emir in a phone call Friday, according to Qatar’s official news agency.
An unnamed senior Iranian official told Reuters on Thursday that Tehran had sent a nuclear proposal to the United States via Qatar. Tehran will only discuss the proposal once the United States meets its demands, the Iranian official told Reuters.
Trump appeared to dismiss the diplomatic efforts Thursday.
“Iran will never possess nuclear weapons,” the president said. “They don’t do anything without our approval. It makes no difference what they are considering,” he said of the diplomatic efforts.
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