President Donald Trump, in his address to the nation Wednesday evening, caught oil markets flat-footed. Rather than signaling an early end to the Iran war, Trump said that the U.S. military would intensify its campaign against Iran for the next two to three weeks. Borrowing rhetoric from the Cold War, Trump said that the United States would “bomb Iran back to the Stone Age.”

Oil prices, both West Texas Intermediate, the U.S. benchmark, and Brent crude, the global price, surged. On Thursday, WTI was trading at around $112 a barrel. Trump’s words shifted market expectations about the outlook for oil over the next several months. Prices will be higher than expected, and America’s drivers will be paying over $4.00 a gallon for gasoline well into the summer. Economic growth will slow, but recession risk will remain low.

A few weeks ago, I wrote two pieces expressing optimism that domestic oil prices would normalize within a few weeks because, before the bombs started to fall, the global economy was well supplied with oil, and both the U.S. and China had large strategic reserves. But I did not anticipate that oil flows........

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