Trump Predicted an Oil Catastrophe if the War Didn’t End. The Clock Is Ticking

The Clock is Ticking: Trump's Oil Catastrophe Prediction Revisited

In June, President Donald Trump predicted an oil catastrophe if the war with Iran didn't end. The clock is ticking as the US faces a dwindling oil reserve and a refining crisis. China's oil reserves are also dwindling, and the US is struggling to meet its own oil needs.

The US has a strategic reserve of oil maintained in case of emergencies, but it is dwindling. Commercial reserves kept in a small town in Oklahoma are also dwindling. However, markets are not freaking out because the answer, which Trump won't like, may be staring him in the face.

The first thing that has staved off the bedlam is that there was a three-week reopening of the Strait of Hormuz, and just about all the oil that had been locked in the Strait of Hormuz, to the tune of over 200 million barrels, got out. This has bought Trump some time.

The other thing that has staved off economic catastrophe, I think, and Trump also said, was China. China has surprised everyone by how much oil it had in reserve before the war. Whether it was prescient or good luck, China had more than a billion barrels of oil sitting in stockpiles, and it's been drawing down those stockpiles to fuel its oil needs more than you would think.

However, the US is the largest oil producer in the world by far. In a vacuum, the United States can support its own oil needs. It is producing something like 21 or 22 million barrels of oil a day, and we consume somewhere around 13 or 14 million barrels a day in this country. We have millions of barrels a day more that we produce than we consume, and so the United States has become an exporter of oil.

The problem is that there are two kinds of oil, broadly speaking. We produce what is called light sweet crude oil, and that's really good for making gasoline and not much else. So if you want to make other stuff — asphalt, or even to an extent, diesel and jet fuel — we need to bring in oil from the Middle East. The other place to get heavy sour crude, which is the second kind of oil, is from Venezuela. You know what's going on there.

And then the next thing that we need to understand is that because the Middle East isn't producing all this oil, the biggest customers of the Middle East, namely Asia and Europe and Australia, are demanding oil from the United States. A lot of our diesel is going to Asia. A lot of our jet fuel is going to Europe, and that has reduced the amount of fuel and oil that we are able to provide our own country.

Things have changed since the ceasefire. The Strait of Hormuz is closed again, and the oil backing up is not as massive as it was before. There's not a massive amount of oil that's ready to come out of the Persian Gulf this time around.

The second thing is that there is now also a blockade happening in the Red Sea. Saudi Arabia was really effective in piping oil that normally would have gone out through the Persian Gulf westward through its pipelines to the Red Sea, and then exiting the Red Sea for its customers in India and Asia via the Bab-el Mandeb Strait. The Houthis (Iran-backed rebels in Yemen) have now blockaded that Strait as well.

It's a fuel problem more than an oil problem. The other thing is that we're in a refining crisis now that hadn't really existed before. Part of the reason is that Iran has either decimated or significantly impaired 30 refineries around the Middle East during the course of the war. It will either take years or weeks or months, depending on the destruction, to get those back online.

Russia has also been bombarded with drone strikes from Ukraine, and so Russia, which was exporting 12% of the world's diesel, is now exporting no diesel because they don't have the refining capacity to do it. China has placed restrictions on its refineries, in part because of demand, but in part because it's trying to increase electrification efforts of its vehicles.

The United States is going all out to refine as much as it possibly can because there's so much demand for US fuel. Well, we've been in a heat wave off and on in the United States, and that's really bad for refining because you need to cool down the crude oil before you can refine it.

The refining crisis is a major concern for the US, and it's not just about the oil reserves. The US is struggling to meet its own oil needs, and the situation is dire. A solution is needed urgently to prevent an oil catastrophe.