Iran-War Fallout: Energy Prices, Trade Policy and Emerging Diplomatic Tensions

Cliff Kupchan, chairman emeritus of Eurasia Group and senior fellow at the Center for the National Interest, explains that the ongoing conflict in the Strait of Hormuz remains a “major dent” in the world economy. The narrow waterway is a choke point for crude oil, liquefied natural gas, refined products and high-tech inputs such as fertilizer. Although the war has not ended, oil shipments through the strait have continued at roughly 800 million barrels per day, with an additional 12 million barrels per day moving via backup pipelines to the United Arab Emirates and Saudi Arabia—about 65 percent of pre-war crude volumes.

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Kupchan notes that higher energy costs have stoked inflation, but the surge in oil prices has been less severe than some analysts predicted. Prices briefly touched $120 per barrel before retreating, far below earlier forecasts of $130-$150. He attributes the moderation to the higher-than-expected flow of oil and to coordinated releases from strategic reserves in both China and the United States. Nonetheless, he warns that crude prices now sit in the $90s and that diesel and refined-product costs are likely to rise further, creating a “headache” for the U.S. president.

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When asked to compare the war’s impact with President Trump’s tariff regime, Kupchan argues that the war is the dominant factor. He believes the peak of tariff usage has passed and that future pressure will stem mainly from sanctions on major Chinese refineries—a step the administration is unlikely to take because it would jeopardize upcoming summit talks and broader U.S.–China relations.

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Kupchan characterizes the current situation as a “dike” the president cannot hold indefinitely; leaks, he predicts, will eventually force upward price pressure. He suggests monitoring crude and refined-product markets for signs of sustained increases as the conflict endures.

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In a related discussion, Kupchan praises Treasury Secretary Scott Bessent’s G20 meeting with his Russian counterpart, stating that the United States correctly linked any economic relief for Russia to the resolution of the war in Ukraine. He views the engagement as a constructive diplomatic step, while emphasizing that normal economic relations will remain suspended until that conflict ends.

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