Crude oil prices tumbled to their lowest levels in over two months on Wednesday, with Brent crude falling below $95 per barrel and US West Texas Intermediate (WTI) dropping below $90 following the US midterm elections and shifting diplomatic dynamics in the Iran conflict.
Brent crude futures fell 50 cents, or 0.53%, to $94.12 a barrel, while WTI declined 61 cents, or 0.69%, to $87.51 as markets reacted to election outcomes and potential diplomatic breakthroughs. Both benchmarks recorded their lowest closing levels since August 31, with Brent ending at $94.62 and WTI at $88.12, representing declines of 8.7% and 8.3%, respectively.
Vice President JD Vance attributed the Republican Party’s midterm election losses to the Iran war, stating in a social media post: “The reason we lost is the war. The president himself said so last night.” The Democrats secured control of the House and Senate, increasing pressure on President Donald Trump to end the conflict, which has driven up fuel prices globally.
Trump acknowledged the war’s economic toll, telling Fox News on Tuesday that “People agree with [gasoline prices] being too high.” Earlier in the week, he told the Financial Times that the US had no immediate plans to strike Iran, though he did not rule out future escalation.
Qatar intensified mediation efforts to prevent further conflict escalation, while Iranian officials stated that no deal with the US was imminent. A US official confirmed that the US conducted limited defensive strikes on Iran’s Qeshm Island targeting surface-to-air missiles but emphasized these did not signal a return to major combat operations.
Market analysts noted mixed signals in the sell-off. Rebecca Babin, senior energy trader at CIBC, suggested the decline might be “getting a bit overdone” due to heightened emotions post-election, while Bob McNally of Rapidan Energy warned that military escalation in the region remained likely.
Gasoline prices may ease in the coming weeks, with Patrick De Haan of GasBuddy predicting the national average could fall below $4 per gallon if tensions do not escalate. The current average stands at $4.12, a 39% increase since the war began on February 28, which disrupted shipping in the Strait of Hormuz.
US crude inventories unexpectedly declined by 5.27 million barrels in the week ending October 30, defying analyst expectations of a slight increase. Gasoline stocks rose by 1.43 million barrels, while distillate inventories fell by 1.19 million barrels, according to API data.
Political and economic implications
The election results have introduced uncertainty over US policy toward Iran. Democrats may seek to restrict funding for the war, potentially forcing Israel to comply with Washington’s decisions. Trump’s announcement of reduced funding to Israel could further pressure Jerusalem to align with US objectives.
Gulf analysts cautioned that a diplomatic settlement perceived as a victory for Iran could embolden further aggression rather than restraint. Some observers suggested that Trump’s weakened political position might increase incentives for negotiation, though escalation risks persist.
Energy market reactions
The sharp decline in oil prices reflects a broader reassessment of geopolitical risks. While the market had priced in a 10% increase in October due to escalation fears, the post-election sell-off suggests traders are now prioritizing diplomatic progress over conflict. However, analysts warn that the situation remains volatile, with potential for sudden shifts in either direction.
Next steps and potential outcomes
Over the next six weeks, seasonal factors typically reduce gasoline and diesel price pressures. If the US and Iran avoid aggressive actions in the Persian Gulf, analysts expect further price declines by mid-December. However, any renewed military posturing or failed negotiations could reverse these trends.
The Biden administration’s stance on the conflict remains a key variable, as does the role of regional mediators like Qatar. For now, markets are closely watching for concrete steps toward de-escalation, with oil prices serving as a real-time barometer of diplomatic progress.