The seemingly endless morass of the Iran war with its rinse-and-repeat cycle of peace talks, collapsing negotiations, and modest escalations of violence is likely to continue at least through the congressional midterms in November and potentially beyond, geopolitical and energy analysts said.
Why? Iranian officials—divided between public-facing politicians and the increasingly powerful Islamic Revolutionary Guard Corps (IRGC)—want to maximize their leverage and political harm to President Donald Trump in the election cycle. With the U.S. and Iran far apart in peace talks and more oil flowing through the Strait of Hormuz under U.S. escort of late, Iran is increasingly losing, leaving them with the option of maintaining the status quo or intensifying their attacks.
“It feels like ‘Groundhog Day,’” said Matt Reed, president of geopolitical and energy consultancy Foreign Reports, citing the classic Bill Murray film about repeating the same day ad nauseum.
“That also might mean we’re being lulled into a false sense of security, and the situation could still deteriorate. I think this is a very dangerous moment,” Reed told Fortune. “Clearly, Iran is losing leverage, its economy is tanking, and its oil exports have collapsed. At the same time, more oil is getting out through the Strait of Hormuz than at any time since start of the war.
“Combine that with the U.S. election calendar and, over the next few weeks, the Iranians might be tempted to lash out again,” he said. “If Trump is not willing to give the Iranians what they want, then their goal will be to humiliate him.”
The U.S.—and much of the world—is facing seasonal record highs for gasoline prices and all-time highs for diesel costs, but any major military uptick would exacerbate prices further. With any truce or potential peace deal seemingly outside of reach for now, the Trump administration would prefer to maintain the status quo until after Nov. 3—the best choice between bad options. “I think Iran is more inclined to lash out or escalate before the election. And Trump would be more tempted to push off escalation until after,” Reed said.
The benefit for the Trump administration maintaining the status quo until after the elections is that it would theoretically take away some of Iran’s leverage, said oil forecaster Dan Pickering, founder of the Pickering Energy Partners consulting and research firm.
“I think the midterms are a line of demarcation. It’s just not clear to me that anything is going to happen before or after them,” Pickering said.
Iran may believe Democrats winning Congress could force Trump to offer more amenable peace terms. But the United States standing pat until November could put more military options back on the table, Pickering said.
“Why? This isn’t a politically popular conflict [for Trump]. Escalating the kinetic side of it post-midterms is probably more palatable,” he added.
Thierry Wizman, a top economic strategist for the Macquarie Group, said in analyst note that energy markets are preparing for exceedingly different outcomes in November.
“Implied volatilities are starting to price in divergent two-way outcomes after Nov. 3, when events can shift wildly one way or the other,” Wizman stated. And more conflict means more inflation, costlier fuel prices, greater government spending, and higher bond yields.
The long slog
To borrow another film reference, the growing fear is the war—entering its eighth month—could evolve from “Groundhog Day” into “The NeverEnding Story.”
Iran continues to demand control of the vital Strait of Hormuz—and the ability to charge tolls or fees—while the U.S. refuses to cave and is insisting on up-front nuclear concessions.
“I’m not sure if there’s a peace deal—not just by the midterms—but in the next six months,” said Marshall Adkins, head of energy for Raymond James. “Getting to some kind of agreement that you can hold the IRGC to is going to be extremely difficult. They’re being patient. Are we going to be there for the next five years? Maybe, but that seems like a stretch.”
Through much effort with military escorts and at a high financial cost, the U.S. is helping more oil flow out of the Middle East than almost at any time since the war began at the end of February. Export volumes are up to almost 13 million barrels of crude oil per day—while blockading Iranian shipments—but still down from 19 million barrels daily in February.
Despite the increased flows, they are largely offset by China increasing its oil imports again—after dramatically cutting its imports during the summer—and the U.S. slowing to a trickle its releases from the Strategic Petroleum Reserve (SPR), which is already down to 44-year lows. However, the Trump administration signed off Sept. 29 on another 40 million barrels being drained from the SPR—the culmination of which would bring the SPR down to emergency levels.
“I don’t see a peace deal in the near future,” Reed said. “What I see is a lot of posturing and negotiating by force. We are not at the point yet where either side is willing to concede.”
Gulf states are paying much more money for tankers and maritime insurance premiums just to move their oil volumes. A daily oil tanker charter has skyrocketed from roughly $50,000 to $1 million. And the U.S. is paying exorbitantly to fund its naval escorts.
“We’re getting oil out of the strait by running these convoys, but how long are we going to do that?” Adkins asked.
“Iran still has the ability to blow up a lot of stuff coming through there,” he said. “Let’s not forget, Iran could shut all this stuff down tomorrow.”
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