Strait Outta Hormuz: Getting the Iran Oil Story Straight

The war in Iran, now approaching its 15th week, put on a mini three-act play on June 11. It was another whirlwind day for a conflict that does not appear to be inching closer to a resolution, despite on-again, off-again promises that a peace agreement is on the horizon. Investors are hopeful that the end is near, and oil markets could find relief in President Donald Trump’s two revelations about what has been happening in the Strait of Hormuz over the last month.

Iran to Watch a Three-Act Play

The first act occurred on Thursday, June 11.

In a Truth Social post that morning, President Donald Trump stated that the United States would hit Iran "very hard tonight." He also threatened to soon take over Iran's oil and gas sector, with Kharg Island in the military's sights. This is Iran's primary oil export hub, handling about 90% of the country's crude exports and maintaining a storage capacity of roughly 30 million barrels.

“At some point in the not too distant future, we will be taking Kharg Island, and other oil infrastructure points, and assume total control of their Oil and Gas Markets, much like we have with Venezuela, which is working out brilliantly for both Venezuela and the United States of America,” the president wrote.

Act two came a few hours later.

Trump announced that the scheduled strikes and bombing had been called off following discussions with Israel and nine other regional countries (excluding Iran and Lebanon). According to the president, talks with the regime “have been brought to the highest level of Iranian leadership and approved.” The naval blockade would remain in full effect “until this Transaction is finalized,” and he added that the time and place of a peace signing would be “announced shortly.”

Reports surfaced that a deal would include several restrictions on the country's nuclear capabilities and other aspects.

But then the curtain was lifted for the third act shortly after Trump's social media announcement.

Iranian state media outlet Fars reported on Telegram that Tehran did not approve any text for a Memorandum of Understanding, a temporary deal that would merely extend the current, fragile ceasefire. “The reality is that up until now, not only has Iran not given a final response, but it is the US that has returned to its previous demand,” Fars reported. “Of course, it seems that given that the US has accepted the text proposed by Iran, there is a possibility of re-examining this text."

There is still time to rewrite the final act to feature evidence that Washington and Tehran were actually close to ending the three-month conflict. Investors have been optimistic: The Dow Jones Industrial Average popped 1,000 points on Thursday and extended its gains in after-hours trading.

But while the world has watched the same episode on repeat since the conflict started in late February, the real story could be what is happening on the energy side of the saga.

Venezuela 2.0

June 10 turned out to be a key date as the president disclosed two key details that could prove paramount to global energy markets.

First, Trump told reporters that US forces removed "millions of barrels" of crude from Iran, something that had not been shared with the public until that moment. “We’ve been taking out millions of barrels of oil. Nobody knows it,” Trump said.

Second, in a Truth Social post, he unveiled that he directed the US military to perform a "secret mission" to transport about 200 oil tankers and commercial vessels through the Strait of Hormuz. More than 100 million barrels of oil had traversed through the narrow waterway between Iran and the Arabian Peninsula, and made their way to the open market.

It is unclear whether Trump was being entirely honest. Energy Secretary Chris Wright told a congressional hearing that he was unaware of such a mission, and the Pentagon simply referred the press to the president’s remarks. Still, if true, this could be a blow to the Iranian regime and potentially a sign of what international energy markets will look like.

Should America’s regime change operations be completed, Iran could become another Venezuela, except with lighter and sweeter crude that is easier to refine and ship.

New data from the Organization of the Petroleum Exporting Countries (OPEC) shows that Iranian crude production has plummeted while Venezuela's output has increased. Tehran's output declined by 546,000 barrels, or 19%, to 2.33 million barrels in May, down almost 30% from before the war. Caracas now produces more than one million barrels a day, up nearly 5% from before the regime-change operation that overthrew former President Nicolás Maduro.

The past may be prologue, as Trump could be employing tenets of The Art of the Deal.

Senate Minority Leader (D-NY) Chuck Schumer, speaking on the upper chamber floor on June 11, blasted the White House for the "fiasco" in Iran:

"For weeks, Donald Trump, Pete Hegseth, and Marco Rubio have insisted their disastrous war in Iran is over. How stupid do they think the American people are? This morning, Trump said he plans to take Kharg Island, which could even mean putting American boots on the ground.

"It doesn’t take a military genius to see that Trump’s fiasco of a war with Iran never ended – not with American helicopters being shot down, not when American bases are being attacked, and American troops are coming under fire."

During the disastrous Iraq War, Trump had slammed Washington for not taking the oil as the spoils of war. Faced with a possible quagmire in the Middle East, the president might see Iran as another Venezuela: Topple the regime, install a friendlier government, and institute a US presence to extract the nation’s crude. So far, the strategy has worked in Latin America, as the United States is the region’s best customer, importing more than half a million barrels of crude per day from the backyard.

If so, the United States could control much of the world’s oil supply: North America, Latin America, the Strait of Malacca, and potentially the Strait of Hormuz.

Waking Up Oily in the Morning

To determine what comes next in geopolitical strife, it is crucial to wake up early and log in to Truth Social. President Trump typically posts the day’s headlines between 6 a.m. and 9 a.m.

But even if a deal were struck, it would not alter the near-term dynamics facing worldwide energy markets: Shrinking oil inventories, damaged infrastructure, and tanker traffic at the global chokepoint are unlikely to return to pre-war levels. But perhaps Treasury Secretary Scott Bessent is correct, and the situation will quickly stabilize as excess petroleum products, whether unsanctioned crude or oil released from reserves, reach markets.

By now, the situation has evolved faster than the San Antonio Spurs giving up a lead in the NBA Finals. What happens at 10:30 a.m. could be old news by lunch.