The TACO Effect: Trump’s Volatile Diplomacy with Iran

The outbreak of war in the Middle East on February 28, 2026, has triggered the largest supply disruption in the history of the global oil market, primarily due to a near-total halt in tanker movements through the Strait of Hormuz. This critical chokepoint, which handled nearly 20 mb/d of crude and oil products in 2025, has seen flows plummet to less than 10% of pre-crisis levels. In response to the blockage and filling storage capacities, Gulf countries have been forced to cut total oil production by at least 10 mb/d.Impact on Global Energy PricesThe disruption has caused extreme volatility and record price surges across energy markets:Crude Oil: Benchmark crude prices, such as North Sea Dated, surged by $20/bbl to reach $92/bbl shortly after hostilities began. On one day, prices experienced a swing of almost $35/bbl, the largest in history. Brent crude rose approximately 43% from late February levels.Refined Products: Price increases in product markets have been even more pronounced than in crude. Jet fuel cracks trebled, with Singapore prices reaching a record $240/bbl, while diesel cracks rose by 50%.Natural Gas: European natural gas prices nearly doubled in early March after Iranian drones targeted Qatari gas facilities, prompting a total halt in that country's production.Global Petrochemical DisruptionGulf states play an outsized role in the petrochemical sector, providing roughly a quarter of the total global market for feedstocks like LPG and naphtha.Feedstock Shortages: In 2025, LPG and naphtha outflows through the Strait totaled 1.5 mb/d and 1.2 mb/d, respectively. The loss of these flows has forced petrochemical plants globally, particularly in Asia, to curb polymer production.Regional Hardships: India is especially vulnerable, as it takes over 45% of Middle Eastern LPG exports, 90% of which is used for domestic cooking and heating. With no substantial storage available, the impact on Indian consumption is expected to be immediate.Feedstock Substitution: In China, some of the loss in LPG is being offset by increased naphtha use and the ramping up of its domestic coal-to-chemicals sector.Global Responses and Mitigation EffortsGovernments and international organizations have implemented historic measures to stabilize the market:Emergency Stock Release: On March 11, 32 member countries of the International Energy Agency (IEA)unanimously agreed to make 400 million barrels of oil available from emergency reserves. The United Statesalone is releasing 172 million barrels from its Strategic Petroleum Reserve.Sanction Waivers: To provide immediate access to oil already navigating East of Suez, the U.S. issued a 30-day waiver allowing Indian buyers to purchase Russian crude oil currently on the water.Alternative Export Routes: Producers are attempting to bypass the Strait of Hormuz using land-based pipelines. Saudi Arabia can reroute up to 5 mb/d through its East-West Pipeline to the Red Sea, and the UAE is utilizing its ADCOP pipeline to deliver roughly 0.5-0.7 mb/d to terminals at Fujairah.Strategic Storage Utilization: Saudi Aramco and ADNOC are utilizing existing storage arrangements in Japan, Korea, and India to maintain supply to these critical consumers.Demand Forecast AdjustmentsThe IEA has significantly downgraded its global oil demand outlook due to the war's impact. The growth forecast for March and April was reduced by more than 1 mb/d, and the full-year 2026 growth projection was lowered by 210 kb/d to 640 kb/d. Beyond direct consumption losses in aviation and industry, economists warn that sustained high oil prices could curtail global GDP by approximately 0.15% for every 10% price increase.Become a supporter of this podcast: https://www.spreaker.com/podcast/the-world-between-us--6886561/support.