Trump Hit Oil and Gas Harder Than Climate Policy Ever Could

The ongoing conflict between the United States and Iran has led to the closure of the Strait of Hormuz since March, removing approximately one-fifth of the world’s daily oil supply from the market. Despite fears of prices reaching $200 per barrel, Brent crude has remained below $100 due to alternative pipelines in Saudi Arabia and the UAE, as well as significant demand destruction in China. However, with the U.S. Strategic Petroleum Reserve at its lowest level since 1983, industry experts warn that the sector faces a potential capital annihilation event if global supply eventually overwhelms dwindling demand.

The closure of the Strait of Hormuz represents what the International Energy Agency (IEA) calls the largest supply disruption in the history of the global oil market, halting the flow of 15 million barrels of oil per day. While the American Petroleum Institute (API) attributes market stability to the growth of U.S. domestic production and infrastructure, other factors have played a critical role in preventing a price surge. Approximately five million barrels per day were rerouted through pipelines across Saudi Arabia and the United Arab Emirates, while China significantly reduced its fossil fuel imports by nearly 40 percent compared to 2025 averages through the aggressive adoption of electric vehicles and renewable energy.

To mitigate the immediate shock of the supply loss, wealthier nations have relied heavily on preexisting stockpiles, with the U.S. drawing from its Strategic Petroleum Reserve (SPR) to levels not seen since 1983. In private meetings with the Trump administration, oil executives have expressed concern that these reserves are nearing depletion, which could trigger a delayed jump in global energy prices. This situation contrasts sharply with the Biden administration era, where despite executive complaints from leaders like ExxonMobil CEO Darren Woods regarding supply-limiting climate regulations, the industry actually saw record profits and production levels without facing such massive physical supply constraints.

As the U.S. and Iran move toward a prospective deal to end the war, the industry faces a new set of risks regarding a potential supply glut that could destabilize the market. The IEA predicts that if the Strait of Hormuz reopens and full supplies return to the market, the resulting surplus could overwhelm current demand, which has been permanently altered by energy transitions in middle- and low-income countries. For U.S. producers operating under a 'drill, baby, drill' mandate, this scenario threatens to tank profit margins, particularly for smaller and midsize firms that require higher global prices to break even on unconventional drilling projects.