Oil prices surge over 6% after Trump threatens to blast Iran ‘back to the Stone Ages’

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SINGAPORE - Oil prices jumped after US President Donald Trump warned the United States would hit Iran “extremely hard” over the next two to three weeks, undermining expectations for an imminent resolution to the five-week-old Middle East conflict.

Mr Trump, in his speech on April 1, said the US will strike Iran “extremely hard” over the next two to three weeks. “We’re going to bring them back to the Stone Ages, where they belong,” he said.

Brent crude, the global oil benchmark, was up 6.6 per cent to US$107.82 per barrel as at 3pm, Singapore time. US West Texas Intermediate crude rose 6.1 per cent to US$106.19.

Stocks also sold off after Mr Trump’s speech undermined a nascent global rally, as concerns grew that a prolonged war would keep crude prices elevated and weigh on economic growth.

Ms Dilin Wu, a research strategist at Pepperstone Group, said: “His speech is indeed disappointing. Trump announced victory while also threatening strikes on Iran’s energy and electricity facilities and saying he might deliver major blows over the next two to three weeks – so effectively it’s business as usual.

“The earlier talk about withdrawing from the Middle East now looks more like a way to calm markets while keeping pressure options open. He clearly still prefers a pressure-first strategy rather than a clean de-escalation.”

“Trump’s latest address was supposed to reassure markets. It didn’t,” wrote Maxence Visseau, founder of investment firm Arkevium. “He called the operation ‘close to completion’ but offered no timeline, no exit plan, and critically, no strategy for reopening the Strait of Hormuz.”

The conflict has effectively closed the strait, choking off supplies of crude, petrol and products such as diesel to global markets, driving up energy prices and raising fears of an inflation crisis. While oil futures have dipped in recent days, the international benchmark is still almost 40 per cent higher than before the war.

The prospect for a resolution has injected optimism into wider markets, but International Energy Agency executive director Fatih Birol warned that energy rationing may be coming soon to some countries as the oil supply shock deepens this month. Filling stations in France and Australia have already run dry.

The stand-off over the Strait of Hormuz is the most pressing issue for energy markets. On March 30, Mr Trump said the US will blow up Iranian infrastructure, including power plants if the strait does not reopen. But on March 31, he called on other nations to wrest control of the waterway. The United Arab Emirates is among the Gulf nations calling on the United Nations to authorise force to reopen it.

Iran and Oman will decide the future of the strait, Iran’s Foreign Minister Abbas Araghchi said on April 1, state-run Press TV reported. The strait will not be opened based on the “absurd displays” of the US President, state-run IRIB added, citing a statement by Iran’s Islamic Revolutionary Guard Corps.

Mr Will Todman, senior fellow in the Middle East Program at the Center for Strategic and International Studies, said: “Iran is very unlikely to agree to a temporary ceasefire if it opens the door to future rounds of conflict. The Iranian regime feels that time is on its side – the longer it blocks the Strait of Hormuz, the more pain it imposes on the global economy.”

Even if the conflict ends in Mr Trump’s desired timeframe, it will still take time for normal flows to resume through the strait, while some energy infrastructure has been damaged by the war and is facing lengthy repairs. A build-up of US troops in the region is also keeping the market on edge. BLOOMBERG