Iran War Will Lower Energy Prices

From his mouth to god's ears!

Actually I think he has a point. Sooner or late we need to take the bull by the balls. No that sounds a little dangerous. We need to take the Chihuahua by balls.

Iran War Will Lower Energy Prices

The risk of regime violence has long been baked into the global price of oil and gas—and everything else.

By Peter Navarro, WSJ

March 12, 2026

President Trump’s decision to confront Iran’s advancing nuclear program, stockpiles of ballistic missiles, and promotion of terrorism addresses an urgent national-security threat. It also tackles an overlooked problem: For more than four decades, Iran’s rogue behavior has imposed a hidden tax on the world economy through higher oil prices and slower growth. Call it the “Iran Terror Premium.”

Roughly a quarter of the world’s seaborne oil trade transits the Persian Gulf, much of it through the narrow Strait of Hormuz. When markets price crude oil, they must account for the risk that conflict, sabotage and terrorism will interrupt these flows. Iran creates that risk through its own forces and through proxy groups such as Hezbollah, Hamas, the Houthis and militias in Iraq, which have targeted energy infrastructure, shipping routes and regional oil facilities.

Even when no oil fields are shut down and no tankers are blocked, the risk of disruption itself pushes prices higher. In this way, oil markets behave like insurance markets: The greater the perceived risk, the larger the premium.

Economists and market analysts have measured this effect in several ways. Dario Caldara and Matteo Iacoviello’s Geopolitical Risk Index is often used to show that spikes in geopolitical tension are accompanied by higher oil prices. Research by Lutz Kilian, Michael Plante and Alexander Richter at the Federal Reserve Bank of Dallas finds that even an increasing probability of supply disruption can push oil prices higher. Market analysts—from major banks to surveys of energy economists—commonly estimate that tensions involving Iran add roughly $5 to $15 a barrel to global oil prices under normal conditions. During major crises, like today’s, oil prices may surge above $100 a barrel.

Oil remains one of the world’s most important economic inputs, affecting transportation, manufacturing, agriculture and trade. Even modest increases in price ripple through the global economy in the form of higher production costs, reduced household purchasing power and tighter financial conditions.

International Monetary Fund research suggests that a sustained 10% increase in oil prices shaves 0.1 to 0.2 percentage point off global growth the following year. Applying that rule of thumb to a persistent $5- to $15-a-barrel Iran-related premium—roughly a 7% to 21% oil shock at current price levels—suggests a drag of about 0.1% to 0.4% on global output. At today’s roughly $115 trillion world economy, that translates into losses of about $100 billion to $450 billion per year. Over a decade, the cumulative burden reaches into the trillions; over a quarter century, it can approach $10 trillion—roughly the combined annual economic output of Germany and Japan.

The burden of the Iran Terror Premium rarely appears as a dramatic economic shock. Instead, it behaves more like a parasite on the global economy—quietly draining growth through slightly higher fuel prices, transportation costs and production expenses year after year.

The world has tolerated this situation for decades, but the economic logic is clear. If the geopolitical risk associated with Iran were reduced, oil prices would fall toward their underlying supply-and-demand equilibrium. Market evidence suggests equilibrium prices could be well below $60 a barrel.

President Trump has made this point. Military confrontation may cause temporary spikes in oil prices, but once Iran’s threat to global energy markets is removed, the geopolitical risk premium should fall—leaving prices lower.

If that happens, the benefits will extend far beyond the Middle East. Across the world economy, production costs will fall while a persistent drag on growth is removed and household purchasing power is strengthened.

Confronting Iran’s destabilizing behavior is first and foremost a matter of national security. But it also promises to reduce the persistent geopolitical risk surrounding Persian Gulf energy flows and bring down the Iran Terror Premium.

Mr. Navarro is White House senior counselor for trade and manufacturing.