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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


It’s Down to the Strait. The Energy Report 08/5/2026

The Wall Street Journal tells us what we already know: Iran is staking everything on controlling the Strait of Hormuz. In other words, they’re holding the world hostage—threatening to wreck economies just to prop up their murderous regime and keep the Strait as their last trump card against total annihilation. Tehran’s hard-line approach is already destroying its own economy and poisoning relations with its neighbors. Yet reports say the U.S., Iran, and Oman are preparing to announce a 60-day deal on shipping through the Strait as soon as today, Axios reported.

The framework would route inbound traffic through Iranian waters and outbound through Omani waters, with no tolls during the temporary period, and a push to clear naval mines from the median lane within 30 days. Donald Trump said talks are “moving along very nicely” and that the Strait “is going to be open very soon.” He added a clear warning: “If they back out again, they are going to get hit really hard.”

But Bloomberg says that Yemen’s Houthi militants issued fresh threats against Middle East shipping, nudging oil prices slightly higher again. U.S. futures wavered after their four-day rally. Yet the market is only rinsing off the lows modestly.

According to the Journal, leaders in Tehran have made a high-stakes calculation in their showdown with President Trump: control of Hormuz is nonnegotiable. By asserting authority over a critical waterway for global crude flows, Tehran is betting that its ability to inflict pain on the American economy is its best leverage to avoid future military action from the U.S. and Israel. With gasoline prices and inflation still elevated, they believe Trump will ultimately accept their terms ahead of fast-approaching midterms.

That’s an extraordinary gamble. It assumes Trump will prefer a messy, volatile stalemate over decisive action. In playing this card so aggressively, Tehran risks miscalculating Washington’s breaking point—and threatening its own economic survival. “Their maximalism will contribute to their isolation in the long run,” Behnam Ben Taleblu, an Iran expert at the Foundation for Defense of Democracies, told the Journal.

Clear fissures exist inside Iran’s government. The hard-line Islamic Revolutionary Guard Corps sees Hormuz as its most important remaining tool after the degradation of its nuclear program and militia proxies. Moderates are increasingly worried that the U.S. blockade is bringing the economy close to collapse. The IMF projects a 6% contraction in 2026 with inflation near 69%. Average Iranians already face fuel shortages and wartime deprivations.

Iran’s chokehold has cut Persian Gulf oil flows to around 36% of prewar levels. Yet prices never sustained levels above $100 long enough to force U.S. capitulation. Even with the Iran-backed Houthis bottling up Saudi oil in the Red Sea, crude was trading below $80 Tuesday and is hovering in the mid-$70s this morning. Some Gulf oil has been rerouted. A limited number of ships have squeezed through by cutting deals with Iran or going dark.

Bloomberg and market reports note the early cushion: the market was well oversupplied at the outset. After Israel and the U.S. struck Iran’s nuclear facilities, China began stockpiling. Demand destruction has played a role. Still, as countries deplete stockpiles at record rates and U.S. emergency oil reserves sit at 40-year lows, sustained price increases remain a risk later this year.

China, one of Iran’s most important partners, has dialed back purchases and shown little appetite to step up. Long-term disruption deprives Iran of its primary revenue stream while accelerating Gulf states’ efforts to build bypass routes—routes that remain within striking range of Iranian missiles and drones. Trump has said Iranian leaders are eager for a deal that would open the Strait, lift the American naval blockade, and eventually limit Tehran’s nuclear program. Iran publicly claims no direct talks with the U.S., insisting Tehran and Oman are discussing a temporary channel. One proposal would allow Persian Gulf-bound ships to enter through Iranian waters while vessels leaving pass through Omani waters without fees for 60 days. Mediators remain hopeful a temporary fix could open the door to broader negotiations.

Secretary of State Marco Rubio framed it as a two-step process: the immediate deal on the Straits, followed by the bigger deal on Iran’s nuclear ambitions. U.S. officials note this echoes the earlier “memorandum of understanding” approach—ceasefire first, then talks.

Over the longer term, Iran’s leverage could diminish as Saudi Arabia, the UAE, and others develop alternative routes. But as one former senior State Department official told the Journal, if the Iranians are fully committed to laying waste to Gulf energy infrastructure, they could still outrun those build-outs. Arab Gulf states are pushing hard to restore the old status quo. It’s not the potential tolls that worry them most—it’s the political leverage Iran would gain. “Iran would be able to let Saudi tankers in one day and not the next,” the official said. “That is a nightmare scenario for Gulf states.” Several ships have been struck in the Strait of Hormuz this week. Others were hit in the Red Sea and Mediterranean as the conflict has widened.

Crack spreads also cracked after Reuters reported that China had eased refined-fuel export limits for a second consecutive month. Five industry sources said the unexpected move could help restore exports toward prewar levels. On Tuesday, Beijing temporarily authorized refiners to export 2.7 million metric tons this month to destinations excluding Hong Kong and Macau. China, the world’s largest oil importer, had sharply reduced fuel exports from March through June to safeguard domestic supplies after the war disrupted crude flows. And then the larger sense of thing the markets looking at us because we’re seeing record highs in the stock market and risk on in the gold and silver regardless of the short term implications of the Strait of Hormuz talks the market is already looking beyond this to a much better world hopefully that world includes the fall of the Iranian regime that doesn’t look like that’s going to be that easy.. Natural gas futures came under pressure Tuesday, falling more than 3% as oil prices weakened on Hormuz deal hopes and forecasts turned milder than previously expected. September NYMEX gas settled near $2.69 per MMBtu after retreating from a one-week high. Cooling Degree Day projections dropped, reducing near-term power burn expectations, while record production and still-comfortable storage continue to weigh on the market. Fox Weather notes the heat pattern is moderating across key demand centers in the coming weeks, though any rebound in temperatures or stronger LNG feedgas demand could quickly reverse the soft tone. Storage remains above the five-year average, giving the market a buffer for now, but traders remain focused on late-summer weather and the broader energy complex reaction to any Hormuz breakthrough.

In the US we have a Nat gas glut but John Kemp reported that Europe is falling further and further behind replenishing its underground gas storage ahead of next winter. Storage sites across the European Union were just 57% full on average on August 2, the lowest for the time of year in records dating back to 2011. Storage is supposed to reach 90% on or before December 1 under regulations approved last year. The regulations contain exceptions that would lower the target to 80% or 75% in the case of persistent and exceptional difficulties securing enough gas. It looks increasingly as if these flexibilities will need to be invoked in full with storage currently on track to be around 75% or less before the winter depletion begins:

The market is pricing hope for a temporary reopening of the Strait. Iran is still playing for keeps. Watch the announcement—and watch whether Tehran actually delivers. Make sure you download the Fox Weather ap and stay tuned to the Fox Business Network. Call today to open your account by calling 888-264-5665 or email pflynn@pricegroup.com.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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