Trump’s threat risks sparking an even bigger oil crisis

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The world has lost over a tenth of its daily oil supply, along with critical volumes of jet fuel, diesel and refined petroleum products. Now prepare for loss of the next tenth, hitting just as all the short-term fixes are exhausted.

This is not a remote tail risk. It is an all-too-plausible outcome as Donald Trump concentrates the 82nd Airborne Division and US marines to “take the oil” on Iran’s Kharg Island.

The supply crisis has already escalated over the last few days in two critical theatres beyond the Strait of Hormuz. Goldman Sachs says investors are buying call options on oil at a strike price of $US450 a barrel.

The pro-Iranian Houthis in Yemen have finally joined the Gulf war, opening a second front in the Red Sea and endangering a further 6 per cent of global oil supply.

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They have started with a symbolic strike against Israel but have also threatened to hit ships in the Bab al-Mandeb Strait – the “Gate of Tears” – or tankers loading at the Saudi oil terminal at Yanbu on the Red Sea. The “dual bottleneck scenario” is in play.

“The Houthis could effectively block all Red Sea shipments,” says Helima Croft, a former CIA analyst now at RBC Capital Markets. “It would only take a relatively small show of force to push crude another leg higher.”

Trump is oscillating by the hour between Armageddon and insouciance, musing out loud that he may just wash his hands of the war and leave the Strait of Hormuz closed – a revenge of sorts against Asia and Europe for refusing to join his capricious “excursion”.

But if he does that, the Iranian regime will not return to the status quo ante.

Hardliners have tasted victory – by surviving – and will press their advantage, imposing a permanent toll fee on tanker traffic and acquiring enormous political leverage over the Gulf.

It would be the worst strategic reverse for the US since the Vietnam War and a field day for the Russo-Chinese axis.

“We are at a critical juncture in the conflict, one that could lead to far-reaching and potentially devastating outcomes that will affect the life of all of us,” says Danny Citrinowicz, former head of the Iran desk at Israel Defence Intelligence.

Trump says America “doesn’t need” the Strait of Hormuz.

Who put that idea in his head? The US imports eight million barrels a day (b/d), either refined products or........

© The Sydney Morning Herald