With fuel costs reaching historic highs, Washington is pulling every foreign policy lever it can find to lower energy prices. The U.S. Navy is escorting tankers through the Strait of Hormuz, and the White House struck a deal to buy Russian diesel and suspended sanctions on Moscow until April. The Trump administration has even pressed Ukraine to stop bombing Russian refineries.
In this DEFP Q&A, Middle East Program Director Rose Kelanic assesses these policies and lays out a better strategy for lowering energy prices. (This interview has been lightly edited for clarity. Watch the full interview here.)
What impact could U.S. moves related to Russia and Ukraine have on energy prices?
Kelanic: Modest at best. If the United States can actually convince Ukraine to stop attacking Russian refineries, it would make a big difference. Although the war in Iran is the biggest driver of high energy prices, a global shortage of refining capacity is also a problem. The Russia-Ukraine war has probably removed something like 700,000 barrels of diesel from the market a day. But that’s in a market where about 30 million barrels of diesel is consumed per day internationally. It would be good if that number could rebound, but it’s not going to greatly lower diesel prices.
The sanctions deal with Russia will have little effect because Ukrainian attacks on Russian diesel constrain Russia’s ability to export diesel. So that deal itself, absent restraining Ukraine, will make basically no difference. (After this interview was conducted, it was reported that Ukraine had temporarily halted strikes on Russian refineries.
Why do energy prices remain so high if tankers are making it through the Strait of Hormuz?
Kelanic: In September, the number of tankers going through the strait increased significantly. By early October, they’d returned to pre-war volumes and even exceeded them, not just through the strait but out of the region as a whole, including all the workarounds. But those numbers are back down again after the most recent wave of Iranian attacks and Houthi attacks on Saudi energy export facilities in the Red Sea and the Saudi east-west pipeline.
So shipments haven’t returned to the lows of the worst part of the war, but they have fallen significantly since the beginning of the month. That said, there’s still a lot of oil that is getting through, and much of that, certainly what’s going through Hormuz, is attributable in part to U.S. protection of these shipments.
There are two main reasons prices remain high. One, it’s not a coincidence; it’s actually a causal relationship. High prices incentivize companies, shippers, and crews to risk running the strait under Iranian fire. If oil prices were lower, less oil would be getting out. The fact that oil prices are high is what’s encouraging companies to take the risk. The other primary reason is that we’ve depleted global stockpiles significantly since the early days of the war. When the war started, we had a really high amount of global inventory, something like eight billion barrels globally, but that’s been depleted steadily throughout the course of the war. That means our buffers against higher international oil prices have also been depleted.
What are the costs of the U.S. effort to escort tankers and blockade Iran’s ports?
Kelanic: The costs are high, but they’re not unbearable, which is in part why we’ve continued to bear them—irresponsibly, in my view. It is fiscally expensive, of course. But more worryingly, it’s expensive in terms of human resources and materiel, and it defers maintenance on the involved vessels. The United States has committed roughly a third of deployable, on-water U.S. Navy ships to the Iran war. It’s putting major strain on the Navy, and that will have implications for U.S. naval readiness down the road. Plus, the United States has expended a significant number of interceptors and munitions.
There’s also the question of burden sharing and why the United States should be the one underwriting security in the strait when it’s a global public good. The fact that oil is leaving the Middle East keeps oil prices relatively modest, but it would be worse if the United States didn’t intervene and escort tankers. Why should U.S. taxpayers be on the hook to pay for that protection when it benefits the whole world?
If the United States actually stopped the war—even if it meant letting Iran impose tolls—it would make a big difference in energy prices. It would be a loss for the United States, but at least the cost of getting oil out would be spread among everyone in the world, not just the U.S. taxpayer.
What’s the smarter way for Washington to bring energy prices down?
Kelanic: The economic destruction caused by this war on global energy markets and the inflationary results that we’re seeing in the United States and elsewhere are really astoundingly high and could push the U.S. and global economy into very scary places. Clearly, the United States needs to end the war, but it’s much more important that Washington end the war with some way of getting oil out of the Persian Gulf, even if it means tacitly admitting that Iran has leverage over the Strait of Hormuz and allowing Tehran to impose a tolling scheme. The United States needs a deal that reopens Hormuz. Or Washington could just walk away and let Iran reopen the strait and tax it. Either option would leave the United States in a much better economic position than it is in now.
When reports first surfaced that Iran was charging vessels to cross the Strait of Hormuz, they were imposing a $1-per-barrel surcharge, which would amount to a $2 million fee on a tanker carrying two million barrels of oil. The cost is going to be higher now in no small part because the United States has shown that it’s willing to pay higher costs. Trump said at one point that the United States would impose a 15 percent surcharge on everything that the U.S. military helps get out of the Middle East. Now, Iran might charge $10 a barrel—and the longer this goes on, the more desperate people will be, and the higher Iran’s price goes. So ending the war now would be the most effective way to lower prices.
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