SAEDNEWS: Amos Hochstein reportedly issued a stark warning to President Donald Trump, claiming that with U.S. strategic reserves significantly depleted and growing cooperation between Iran and Russia, Washington would have few effective tools to contain a sharp rise in gasoline and energy prices if tensions in the Strait of Hormuz were to escalate.
According to Saednews, Former Biden administration senior negotiator and adviser Amos Hochstein has warned President Donald Trump that if tensions in the Strait of Hormuz intensify again, the safeguards that helped stabilize global energy markets earlier this year are rapidly disappearing.
According to Hochstein, the market previously benefited from several protective factors, including higher U.S. Strategic Petroleum Reserve capacity, larger oil inventories at Cushing, Oklahoma, and reduced oil demand from China. However, these advantages are shrinking week by week, increasing the risk of a more severe market disruption.
He emphasized that the issue extends beyond energy prices. U.S. Treasury markets are already reflecting growing inflation concerns, with the yield on the 10-year Treasury rising to nearly 4.60%, its highest level in about two months, while the 30-year Treasury yield has remained above 5% since July 7.
Hochstein argued that as Trump weighs the choice between escalating tensions or pursuing a diplomatic agreement, he faces a difficult reality: developments involving Russia and Iran are becoming increasingly interconnected, while the tools available to soften future energy shocks are steadily eroding.
1. Oil products remain vulnerable
Although the announcement of the Hormuz Memorandum of Understanding (Hormuz MOU) eased concerns in crude oil markets, it did not reduce pressure in diesel, gasoline, or jet fuel markets. This imbalance has become one of the market's greatest vulnerabilities.
2. Russian diesel exports have been restricted
Coordinated Ukrainian attacks on Russian refineries prompted Moscow to impose a broad ban on diesel exports for both producers and traders. Russia supplies approximately 11% of the world's diesel, making the restriction significant for global fuel markets.
3. Refining margins have reached exceptionally high levels
Refining margins in both the United States and international markets have climbed to historically elevated levels. Wide crack spreads indicate that refined petroleum products—not crude oil itself—have become the primary supply bottleneck.
4. U.S. oil inventories at Cushing remain critically low
The U.S. Energy Information Administration (EIA) and the Department of Energy (DOE) have warned that crude oil inventories at Cushing, Oklahoma—the delivery hub for WTI crude futures—fell to around 19 million barrels in June, the lowest level since 2014, with only a modest recovery since then.
5. Strategic Petroleum Reserve approaching historic lows
The U.S. Strategic Petroleum Reserve (SPR) is reportedly close to falling below 300 million barrels, a level not seen in more than four decades. The SPR serves as a critical emergency buffer against supply disruptions, but its capacity has been significantly reduced.
6. China's oil demand is recovering
Earlier in the crisis, China's reduced imports—estimated at 4 to 5 million barrels per day—gave global markets time to recover. However, China is now returning to the market, easing fuel export restrictions and rebuilding its reserves, meaning this source of market relief may no longer be available.
7. Market safeguards are fading
If tensions in the Strait of Hormuz escalate again, the protective factors that existed in March—including larger U.S. emergency reserves, higher Cushing inventories, and weaker Chinese demand—will no longer provide the same level of support.
8. Financial markets are signaling inflation risks
Rising U.S. Treasury yields suggest that investors are increasingly pricing in the inflationary impact of potential energy market disruptions.
9. Fuel prices could rise sharply
Gasoline prices in the United States could climb above $4 per gallon in the coming days, while diesel prices have already exceeded $5 per gallon, levels last experienced during the 2022 energy crisis.
10. Diplomatic action is becoming more urgent
Hochstein concluded that the time has come to prevent further economic damage by reaching a diplomatic agreement. While financial markets have remained relatively resilient so far, the mechanisms available to manage another major energy shock are rapidly diminishing, and China may no longer be able to provide the same stabilizing effect it did previously.
