Trump Issues 48 Hour Ultimatum to Iran as Oil Hits $113
President Donald Trump just issued a 48 hour ultimatum to Iran, and oil markets responded by spiking to $113 a barrel. The White House warned that if Iran doesn't fully reopen the Strait of Hormuz to commercial shipping within two days, the US will escalate military action significantly.
Brent crude, the global benchmark, hit $113.42 on Monday morning. West Texas Intermediate, the US benchmark, reached $108.73. That's the fifth straight day of gains, and oil is now up more than 45% from the $78 level before the war started on February 28.
Trump's ultimatum came during a weekend press conference. He said Iran has 48 hours to allow safe passage for all commercial vessels through the Strait or face consequences. He specifically mentioned strikes on Iranian power plants and oil infrastructure as options under consideration.
Iran's response was defiant. The new Supreme Leader, Mojtaba Khamenei, said Iran will never surrender to American threats. He vowed to keep the Strait of Hormuz closed until all US and Israeli forces leave the region. That's a non starter for Washington, which means the 48 hour deadline will likely pass with no resolution.
Military analysts expect the US to follow through with strikes if Iran doesn't comply. The Wall Street Journal reported over the weekend that thousands of Marines and three amphibious assault ships are deploying to the region. The White House is reportedly considering a plan to occupy Kharg Island, Iran's main oil export hub, to physically prevent Iran from disrupting shipping.
Oil traders are pricing in a worst case scenario. If the US bombs Iranian power infrastructure, Iran will almost certainly retaliate against Saudi and UAE oil facilities. That could take millions more barrels per day offline. Goldman Sachs warned that oil could hit $150 in that scenario. Citigroup mentioned $200 as a possibility if the Strait stays closed for months.
Gas prices in the US are already responding. The national average hit $3.61 per gallon Monday morning, up from $3.02 before the war. Some analysts expect $4 per gallon nationally within two weeks if oil stays above $110. California could see $5.50 to $6.00 per gallon.
The economic impact is spreading. Airlines are hemorrhaging cash as jet fuel costs soar. Delta, United, and American Airlines all announced fuel surcharges on tickets. Shipping companies like FedEx and UPS raised their rates. Manufacturers are warning about higher costs for anything made with petroleum based materials, which is basically everything from plastics to fertilizers.
Europe is particularly vulnerable. Many European countries depend heavily on oil and gas from the Middle East. Germany, Italy, and Spain are all facing potential shortages. The European Union is considering releasing more strategic reserves, but those are already depleted from releases earlier this month.
China and India are scrambling for alternative supplies. Both countries import massive amounts of oil through the Strait of Hormuz. They're trying to buy more from Russia, but Russia can't make up for all the missing Gulf barrels.
Stock markets are reacting negatively. Energy stocks like Exxon and Chevron rallied, but everything else fell. The S&P 500 dropped 1.8% Monday morning on fears that sustained high oil prices will choke off economic growth and reignite inflation.
The Federal Reserve is watching closely. If oil stays above $110, core inflation will almost certainly rise. That could force the Fed to raise interest rates instead of cutting them. Higher rates in a slowing economy is a recipe for recession.
