Oil prices are near the highest levels of the year. Brent crude prices have soared to nearly $117 per barrel, just shy of the yearly high of $118 in late April. But circumstances are quite different now.
The problem now isn’t a shortage of oil, as it was during the first several months of the Iran war President Trump launched in February. Persian Gulf oil flows are now returning to pre-war levels. But there are two new problems.
One is that it now costs a lot more to export oil from the region. Iran is still attacking and hitting some tankers passing through the Strait of Hormuz. Higher risk means higher costs, since shippers charge more, crews get paid more, and workarounds entail inefficiencies. These costs are adding $30 or more more to the cost of each barrel leaving the gulf.
There’s also a high “risk premium” now because Trump and his counterparts in Iran have each threatened sharp escalation once the US midterm elections wrap up in early November. So traders are preparing for renewed fighting, which could involve more tanker disruptions, Iranian attacks on regional energy infrastructure, and other sorts of mayhem.
Trump might have screwed up there. His threat of a new round of attacks on Iran was meant to sound tough, but it had the unintended effect of raising prices right before a set of elections that will serve as a referendum on him and his policies. Oil prices have jumped about $16 per barrel in October. Gasoline and diesel prices can only follow them higher. By Election Day on November 3, gas and diesel prices will be near the highest levels of the year.
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For what it’s worth, we think Trump is bluffing about a huge new attack against Iran. There’s no reason to think it would accomplish much—except expose the US shortage of interceptors meant to shoot down Iranian missiles and drones targeting regional energy infrastructure. The blockade of Iranian oil is working and the smartest move is to let it play out. If we’re right, oil prices could plunge once markets realize no big US attack is coming.
Interest rates, meanwhile, have stabilized. The benchmark 10-year Treasury yield has dipped to 5% and mortgage rates have ticked down from the 2026 high of 7.4% to about 7.3%. Rates could stay in this range for some time, which would probably be fine.
Rapidly rising rates have been a concern, but they’ve settled for a couple of reasons. One is that higher returns drove some investors to buy bonds, and more demand for bonds pushes rates down. Some investors have also been buying safe bonds such as Treasuries as a haven against uncertainty in the stock market. That also pushes rates down.
Why is there uncertainty in the stock market? Because doubts about the return on massive investment in artificial intelligence persist. The S&P 500 is up 11.4% for the year, and it hit its last record high not long ago, on October 6. At the same time, it’s down 2.2% since mid-August and has basically been in a stalling pattern for the last two months.