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Iran War Set To Push PetroChina’s Trading Profit to Record $3 Billion
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Two Trump decisions will set this weekend's energy risk, and in both he is giving up leverage to chase lower pump prices before November 3. The first is to keep U.S. firepower out of Saudi Arabia's war with the Houthis. The Houthis hit Aramco's Dhahran headquarters on Tuesday night and have kept Riyadh's main airport shut until Saturday, and Washington's rule since September is that it stays out as long as the Houthis hit only Saudi targets. The second is the license for Russian diesel. It faces its first test on October 18, the deadline in the Russia sanctions law Trump signed a month ago for duties of up to 500% on Russian petroleum products.
The Houthis hold a veto over Gulf peace
The Houthis can’t defeat Saudi Arabia, and Iran can't defeat the United States, but both now hold a veto over any peace in the Gulf: a single missile at King Khalid or a single tanker strike in Hormuz can undo whatever Washington negotiates, and no ceasefire on the table does anything to remove the threat.
The Houthis made the point twice in four days. Last Saturday, a missile hit King Khalid's terminals in Riyadh and killed 13 people, an American among them. On Tuesday, they hit Aramco's Dhahran headquarters, which houses the operations center for the company's rigs, pipelines, refineries, and export terminals, and the fire spread across several floors. The airport stays shut until Saturday, and nearly half of all Saudi flights have been cancelled. The Houthis have told oil…
Two Trump decisions will set this weekend's energy risk, and in both he is giving up leverage to chase lower pump prices before November 3. The first is to keep U.S. firepower out of Saudi Arabia's war with the Houthis. The Houthis hit Aramco's Dhahran headquarters on Tuesday night and have kept Riyadh's main airport shut until Saturday, and Washington's rule since September is that it stays out as long as the Houthis hit only Saudi targets. The second is the license for Russian diesel. It faces its first test on October 18, the deadline in the Russia sanctions law Trump signed a month ago for duties of up to 500% on Russian petroleum products.
The Houthis hold a veto over Gulf peace
The Houthis can’t defeat Saudi Arabia, and Iran can't defeat the United States, but both now hold a veto over any peace in the Gulf: a single missile at King Khalid or a single tanker strike in Hormuz can undo whatever Washington negotiates, and no ceasefire on the table does anything to remove the threat.
The Houthis made the point twice in four days. Last Saturday, a missile hit King Khalid's terminals in Riyadh and killed 13 people, an American among them. On Tuesday, they hit Aramco's Dhahran headquarters, which houses the operations center for the company's rigs, pipelines, refineries, and export terminals, and the fire spread across several floors. The airport stays shut until Saturday, and nearly half of all Saudi flights have been cancelled. The Houthis have told oil workers and shipping companies to clear out of Saudi energy sites.
The Saudis can’t stop all the strikes. The Houthis send drones first, then cruise missiles under the radar, then ballistic missiles, and aim them at targets spread across 2.15 million square kilometers. Each cheap drone costs Riyadh an interceptor worth up to millions of dollars, and the kingdom is running short. It is pulling batteries back to oil sites and royal palaces, and the Iran war has already drained the Patriot stocks it would normally draw on.
Washington is not likely to step in before November 3. More than 200 U.S. intelligence and military personnel help Saudi commanders pick Houthi targets, and U.S. tankers refuel Saudi jets, but Trump isn’t sending U.S. jets. He did come close in September, when munitions were loaded but strikes were called off at the last minute after the Houthis promised to keep Bab el-Mandeb open and aides warned that strikes would push up oil prices and drain interceptor stocks. Since then, Washington has stayed out. Riyadh is fighting with its own air force, Pakistani jets and an Omani back channel to the Houthis. Expect more Houthi fire at Saudi airports and Aramco, more Saudi strikes on Houthi fuel and missile sites, and an oil price that keeps a Saudi risk premium.
Trump has given Moscow a diesel carve-out three weeks before the midterms and pressed Kyiv to stop hitting Russian refineries, all for less than five days of U.S. diesel use. Ukraine's drones had cut Russian refinery runs to about 3.8 million b/d, from 5.3-5.5 million a year earlier. Washington threatened to cut off intelligence sharing and European purchases of U.S. weapons for Kyiv, and gave Ukraine no warning (despite intel) before a Russian barrage hit six power plants and cut power to 600,000 people. Ukraine held off for three days under an "energy ceasefire" to which Moscow did not commit.
General License 135 runs until April 7, 2027, with no volume cap and no named buyers. Trump has announced 300,000 tonnes now, 500,000 in November and 1 million after that, about 13.5 million barrels in all, plus another 3 million tonnes if Russia's refineries can produce it. The first tranche covers less than a day of U.S. transport fuel use, and the rest covers fewer than four. The first tanker, about 40,000 tonnes of ultra-low-sulfur diesel, was loaded at Primorsk on October 13 and is headed for Morocco.
Diesel averages $6.28 a gallon, and wholesale prices have not moved. Fuel oil is up 74% from a year ago. September CPI came in at 3.7%, and gasoline accounted for more than half of the rise. Russian diesel does nothing for gasoline, and nothing for crude, while Brent sits above $100. Citi expects the Fed to raise rates in December. Mike Rogers, the Republican Senate candidate in Michigan, has already distanced himself from the deal.
In the meantime, Zelenskyy has resumed refinery strikes, citing Russian strikes that damaged 30 Ukrainian energy facilities on Tuesday alone, the lack of U.S. warnings before Russian missile barrages, and the Starlink restrictions. Ukrainian drones set Rosneft's Ryazan refinery on fire overnight. The plant supplies Moscow, holds about 5% of Russian refining capacity, and had already shut after strikes in May, July, and September. Russia has no spare refining capacity, so every plant Ukraine hits comes straight out of the diesel Trump is counting on before November 3.
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