MySafeWordIsDeltaHedging

Trump Doesn’t Need an Iran Deal. The Market Already Made One. Washington is debating whether President Trump needs a deal with Iran to bring energy prices down. The market has already answered. Iran’s only real leverage was the threat that Gulf oil couldn’t reach the world. That threat has failed. Saudi Arabia pumped 10.56 million barrels a day in October, up from 6.3 million in April and close to its pre-war high. Riyadh is now fighting for market share, and history shows what follows. The last three times it did, oil fell 57, 60 and 67 percent. The oil is getting through. Tanker rates west of Suez fell as much as 70 percent in a single week, and the key route from the Gulf of Oman to Asia has roughly halved since mid-October. West Texas crude has dropped from $102 to $87. Private capital did the rest. When war-risk premiums hit 10 percent of a ship’s value, Chubb, Beazley and Lloyd’s syndicates moved in to write the business, and competition is pushing premiums back down. Washington’s $40 billion insurance backstop hasn’t written a single policy because it hasn’t needed to. High prices were the cure for high prices. Isolation is working. Tehran can no longer hold the world’s oil hostage, and a deal now would hand it relief it hasn’t earned. Voters wanted affordability, and the pump is delivering it. The real threat to that relief is the Federal Reserve hiking rates into an energy shock that is already over. The yield curve is yelling policy mistake!