Time For A Break?

The oil market thinks the US and Iran may soon start talking instead of fighting

This week began with more bad news for the world’s oil supply. US President Donald Trump promised to strike back after American soldiers were killed in Iranian attacks. At the same time, Yemen’s Houthi rebels said they would block ships linked to Saudi Arabia. If that happens, less oil could travel through two important routes—the Persian Gulf and the Red Sea.

Normally, news like this would make oil prices jump. But something surprising happened. Oil prices actually fell a little on Tuesday. That’s because many traders believe the US and Iran may soon return to the negotiating table.

Both countries have said the ceasefire they agreed to in June has fallen apart. Even so, there are signs that neither side wants the fighting to continue forever. Iran’s foreign minister said it is smart to negotiate after making gains in a war, but also warned against putting people’s lives and the country’s future at risk. In the US, Secretary of State Marco Rubio said the door to diplomacy is still open. These comments suggest that talks may not be far away.

Some reports say Pakistan, Egypt, Qatar and other countries are trying to help. They have suggested that the US and Iran stop fighting for 10 days and use that time to negotiate. If they succeed, ships could move safely again and the war might end much sooner than many people expect.

That would also help Trump. Higher oil prices usually mean higher petrol prices, and American drivers are already paying more. If fuel becomes even more expensive, many voters could become unhappy before the next elections.

But if peace talks fail, oil prices could rise again. The world has already used up many of the reserves that helped keep prices under control earlier this year. The US has less emergency oil in storage than before, China cannot keep cutting its imports forever, and there is also a shortage of fuels like diesel and jet fuel. Some experts at Goldman Sachs think oil could climb to about $120 a barrel in the worst case. If the fighting stops, however, prices could fall below $70 by the end of the year.

For now, no one knows what will happen. The best outcome is peace—but it’s wise to be ready in case things get worse.

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