UNITED States President Donald Trump's trademark ability to talk down oil markets with a few words is fading as the Iran war drags on, leaving global energy prices far more exposed to escalation.
The Republican president's so-called "jawboning" was one of the defining features of the Iran conflict's early months after fighting erupted in late February.
In the months before the short-lived July ceasefire, Trump's repeated public statements and social media posts that said Washington and Teheran were edging towards a deal to end the conflict and reopen the Strait of Hormuz helped keep oil prices well below record highs.
That rhetoric appeared to work even as the blockage of the chokepoint, which previously handled about a fifth of global oil supplies, upended energy markets.
Trump repeatedly predicted during the months of Israeli-US airstrikes that oil prices would "drop like a rock" once a ceasefire deal with Iran is reached.
Traders likely deemed it too risky to bet against Trump's desire to avoid a domestic fuel price spike. As stockpiles deteriorated, they assumed the US president would pull back and end the war quickly.
That bet appeared to pay off until markets learned the limitations of Trump's control.
The July ceasefire broke down, giving way to a protracted, low-level conflict that has spread throughout the region, including the recent escalation in violence between Yemen's Iran-aligned Houthis and Saudi Arabia.
This lack of market confidence is now undermining the president's efforts to bring down soaring diesel prices, a key priority before US midterm elections that are only three weeks away.
For energy markets, the era of the Trump trade may be over.
Global benchmark Brent crude prices have held stubbornly above US$100 a barrel for most of the past few weeks, despite a strong recovery in oil flows through Hormuz.
Crude exports through the critical waterway have rebounded to roughly 80 to 90 per cent of pre-war levels.
Yet repeated efforts by Trump and US Energy Secretary Chris Wright to calm markets by highlighting the recovery in flows have not proven effective.
The Trump administration can't "talk" those realities away anymore.
It turns out that increasing flows is one thing. Convincing traders that supplies will remain secure is much harder.
Nowhere is that more evident than in the diesel market.
The combined impact of the Middle East conflict and Ukraine's drone campaign against Russian energy infrastructure has sharply reduced global refining capacity, limiting gasoline, diesel and jet fuel output.
US diesel prices have climbed to fresh records of US$6.50 a gallon, while US gasoline prices remain elevated, worsening a cost-of-living squeeze that has become a major political challenge for Trump ahead of the Nov 3 elections.
It is, therefore, no surprise that the administration has spent much of the past few weeks searching for ways to cool the diesel market.
Trump last week announced an agreement with President Vladimir Putin under which Russia would resume some diesel exports to ease the global shortage.
"Between our TOTAL CONTROL of the Strait of Hormuz, and this great announcement on Russian Energy, Diesel Prices for Americans and, indeed, the World, will be COMING DOWN, IN RECORD NUMBERS, AND FAST!" Trump wrote on Truth Social on Oct 9.
But the volumes involved are modest. The total promised Russian exports over the next three months amount to around 15 million barrels, equivalent to only about half of one day's global diesel consumption.
Trump also announced on Sunday an energy infrastructure ceasefire between Russia and Ukraine, although neither side has publicly confirmed adherence to the agreement.
Yet so far, Trump's "diesel diplomacy" has had only a limited effect. US wholesale diesel prices were flat on Monday, European diesel futures dropped two per cent while Brent rose around two per cent to nearly US$107 a barrel.
The loss of around two million barrels per day of refining capacity in Russia and the Middle East, and the sharp drawdown in global oil inventories have left energy markets in a precarious position that cannot be fixed through rhetoric or relatively small supply additions.
Markets simply don't believe Trump has the ability to bring about a resolution.
The president can still move energy markets with his words, but that power has clearly weakened as the web of conflicts has become more complicated.
The writer is from Reuters
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