Why the Iran War Could Trigger Trump’s Worst Nightmare as Oil Surges

The war with Iran has yanked markets back into an old, ugly truth: in the Middle East, oil isn’t just part of the story — it’s the story.

And this time, the chokepoint risk isn’t just theoretical. Tanker traffic through the Strait of Hormuz has halted in the wake of U.S. and Israeli strikes with hundreds of vessels in a holding pattern as Iran's Revolutionary Guard said it had already struck one U.S. tanker and is prepared to attack others who dare to make the passage.

Considering about a fifth of the world’s oil moves through that narrow strip of water, it's no surprise that oil prices have already surged by more than 10% just to start the week. But what is surprising, is just how quickly the Trump administration has seemingly jumped into assuring the market that things won't continue to get worse.

After oil prices surged Monday and Tuesday, Treasury Secretary Scott Bessent jumped on CNBC to make the point that China is much more dependent on the Straight of Hormuz than the United States.

"China is very vulnerable on the energy side, more than 50% of their energy comes out of the gulf," he said, adding that the U.S. is in a much more dominant position now given its standing as a net oil exporter. "This is a very, very different ball game."

That may be true, but higher oil prices would be another inflationary shot in the arm right as economists thought the worst might be over. It would also directly impact the price of gas at the pump for Americans if other steps aren't taken.

"The general rule of thumb is that each dollar of increase in the oil markets equates to about a 2-to-2.5 percent increase for Americans at the gas pump," said Politico oil and gas reporter James Bikales.

That might explain why President Trump took the historic step of posting about the U.S. insuring shipping through the Strait as shipping insurers more than doubled the cost for ships in the region. And while the President's and Sec. Bessent's efforts quelled the price of oil momentarily on Wednesday, prices resumed their surge Thursday to hit a new yearly high.

As top oil analyst Stephen Schork explained to Coinage this week, it does not help that Iran now also finds itself in a new strategic position. Markets are putting the spotlight where it belongs: How long this conflict lasts, and whether the actors involved still behave rationally under pressure. Harkening back to 1991 and the Desert Storm conflict, Schork expressed concern that Iran's strategy might echo Iraq burning Kuwait's oil fields when they retreated in a literal "scorched Earth" campaign.

“We’re not dealing with a rational player anymore. We’re dealing with an irrational player that does not worry about consequences, and that is the real concern," he said.

If the market continues to wake up to the conflict lasting longer, Schork's modeling points to brent crude prices hitting $98 in the next 20 days.

The uptick in inflation expectations are already beginning to weigh on the number of expected rate cuts this year. A month ago, traders on Polymarket were factoring in the most likely scenario of three rate cuts in 2026 at about a 25% chance. By Tuesday, those odds had flipped to just about 15%.

A research report from Goldman Sachs this week posited that a sustained 10% increase in oil prices could boost core CPI by four basis points and headline CPI by 28 bps. If the scenario Schork warned against plays out — and oil prices remain elevated for months — year-over-year headline inflation could temporarily climb back toward 3%.

On Wednesday, President Trump formally submitted Kevin Warsh’s nomination to succeed Jerome Powell as Fed chair, a move that would put a Trump-aligned critic of the Fed’s recent framework in charge at a moment when the central bank could be forced into choosing between inflation optics and growth optics — with oil doing the steering.