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Markets · · 3 min read

Oil Falls to a Two-Month Low as the Election Changes the Politics of the War

Crude has fallen four days in a row, including an 8% plunge on Wednesday, as traders bet that the midterm results will push Washington toward a deal with Iran. No deal exists yet, and that's the risk.

By the fnews.si editors

Oil is having its worst week in months. Both Brent and West Texas Intermediate fell more than 8% on Wednesday, to their lowest levels since August 31, and slipped further in early trading on Thursday. Brent traded below $94 a barrel and WTI below $87 in Asia, before rebounding toward $97 and $90 after the US open.

At the start of the week, Brent was above $113. At its low, that was a fall of about 17% in four days, without any change in the physical supply of oil.

Why the election mattered to oil

This week we described how much of the oil price was a risk premium, the extra amount buyers pay for the chance of disruption in the Strait of Hormuz. And we showed how headlines can move that premium back and forth within a single day.

The midterm results moved it in one direction. Traders are betting that the scale of the Republican losses will push the White House toward ending the war with Iran. Two sources with ties to Gulf governments told Reuters that a politically weakened president has more reason to seek a deal, and that a full-scale assault now looks less likely.

Vice President JD Vance added to that view with a post on X: “The reason we lost [the midterm elections] is the war.” High gasoline prices caused by the conflict had weighed on voters for months.

Hope is not a deal

It’s important to be clear about what has and hasn’t happened. No agreement has been announced. Talks mediated by Qatar ended last week with revised proposals but no breakthrough, and an Iranian official said this week the two sides remained far apart. On Monday night, US forces struck Iran’s Qeshm Island.

So the market is now pricing a higher probability of peace, not peace itself. If talks stall or fighting escalates, the premium that has drained out of the price this week can come back just as fast. Oil’s rebound on Thursday morning, after an early slide, shows how quickly sentiment can turn.

Who benefits from cheaper oil

If the decline holds, the effects will spread widely:

  • Drivers and households. Gasoline prices follow crude with a lag of a few weeks, and tend to fall more slowly than they rise. Relief at the pump would come gradually.
  • Airlines, trucking and delivery companies. Fuel is one of their largest costs. Uber said this week that high fuel costs were deterring drivers in some markets.
  • Inflation and interest rates. This is the biggest effect. Central banks in the US, Canada and Britain have raised rates partly because of the oil shock. The Bank of England raised rates again on Thursday, and its governor called the recent fall in oil “encouraging.” A sustained drop in crude is the quickest way to ease the pressure for further hikes.
  • Energy producers lose. Energy was the worst-performing sector on Wednesday. For Canada’s oil producers and the government revenues that depend on them, lower prices cut income.

What to watch

The signals that would confirm the move are physical, not political: tanker traffic through the Strait of Hormuz, insurance costs for ships in the Gulf, and any formal announcement of talks or a ceasefire. Until then, oil prices will keep responding to every statement from Washington and Tehran.

For investors, the lesson of this week is that a price driven by the odds of war can fall just as dramatically as it rose, and can reverse again without warning.