Why oil prices plunged 8%: US midterm setback fuels bets on Trump ending Iran war

Oil prices plunged more than 8 per cent on Thursday after US President Donald Trump’s Republican Party suffered a sweeping defeat in the midterm elections, with Democrats winning control of both chambers of Congress. The result prompted traders to reassess the prospects of a prolonged US-Israeli war against Iran, raising expectations that Washington could pursue a diplomatic settlement rather than escalate the conflict.

US benchmark West Texas Intermediate (WTI) crude futures fell $7.97, or 8.3 per cent, to settle at $88.12 a barrel. Brent crude futures, the global benchmark, declined $8.98, or 8.7 per cent, to $94.62 a barrel. Both benchmarks recorded their lowest closing levels since August 31.

The sharp fall came as markets increasingly priced in the possibility that Trump’s political setback could accelerate efforts to end the eight-month conflict. The war has disrupted energy supplies from the Gulf and pushed up global oil prices, raising fuel costs for consumers and businesses.

The immediate political trigger came from Vice President JD Vance, who publicly blamed the Iran war for the Republican Party’s electoral defeat.

“The reason we lost is the war,” Vance said in a social media post on Wednesday, adding that Trump himself had acknowledged the impact of the conflict.

More from Business

His remarks added to expectations that the White House could face growing pressure to find an exit from the conflict. Trump also acknowledged that the war had contributed to the election setback. He had told the Financial Times on Tuesday that the US had no immediate plans to strike Iran.

Why the US election result matters for oil prices

The election outcome has changed the political calculations surrounding the conflict.

Democrats are set to take control of the House of Representatives and the Senate when the new Congress convenes. This could make it more difficult for Trump to secure political and financial support for an extended military campaign.

Congress has significant powers over government spending and military funding. A Democratic-controlled legislature could use those powers, along with oversight and pressure through proposed war-related resolutions, to challenge the administration’s approach to Iran.

Senate Democratic leader Chuck Schumer has already indicated that his party intends to push for an end to the conflict.

This has given oil traders a reason to reconsider the possibility of further US military escalation.

The market had previously been factoring in the risk of a wider conflict involving Iran, Israel and other countries in the Gulf. Any further escalation could threaten oil production, exports and shipments through the strategically important Strait of Hormuz.

The possibility of a diplomatic settlement has now prompted traders to unwind some of the geopolitical risk premium built into crude prices.

A geopolitical risk premium is the additional amount traders are willing to pay for oil because they fear that a conflict could disrupt supplies. When the likelihood of escalation declines, that premium can fall even before actual oil shipments return to normal.

Are the US and Iran close to a peace deal?

Not necessarily. While markets are responding positively to signs of a possible diplomatic opening, Washington and Tehran remain far from reaching an agreement.

Qatar has stepped up mediation efforts to prevent another round of military escalation following the US elections. Iranian officials have indicated that communication through mediators is continuing, but negotiations remain complicated.

A senior Iranian official told Reuters that the two sides were still far from a deal to end the war.

There are also concerns about the terms of any potential settlement. An agreement that allows Iran to present the outcome as a victory, while leaving Trump politically weakened, could create fresh instability rather than end the conflict.

Oil supplies have not fully recovered

The sharp fall in prices also needs to be viewed against the continuing disruption to global energy flows.

Gulf exports of crude oil, condensate and refined petroleum products, excluding liquefied petroleum gas, averaged 17.1 million barrels per day in October, according to ship-tracking data from Vortexa cited by Reuters.

This was lower than the 18.9 million barrels per day recorded in September and represented only around three-quarters of pre-war levels.

The Strait of Hormuz remains a critical factor in the global oil supply equation. The narrow waterway connects the Persian Gulf with international shipping routes and is an important passage for energy exports from major Gulf producers.

Any disruption to tanker movements through the strait can affect the availability of crude oil, increase shipping and insurance costs and push up prices across international markets.

The United Arab Emirates is also considering the construction of a third oil pipeline to transport crude outside the Strait of Hormuz, according to a Bloomberg News report.

There is another development worth noting. US crude inventories unexpectedly declined last week, according to the Energy Information Administration.

Crude stocks fell by 865,000 barrels to 409.8 million barrels in the week ended October 30. Analysts had expected inventories to increase by 877,000 barrels.

Normally, falling inventories can support oil prices because they indicate tighter supplies. But the sharp decline in crude prices suggests that expectations of a possible diplomatic settlement have outweighed this near-term supportive signal.

What the oil price fall means for India

The decline in international crude prices could offer significant relief to India, one of the world’s largest oil importers.

India imported 246.6 million tonnes of crude oil in the financial year 2025-26, with its crude oil import dependence reaching 88.7 per cent, according to data compiled from the Petroleum Planning and Analysis Cell (PPAC).

The country is particularly vulnerable to geopolitical disruptions in the Gulf because of its reliance on imported energy.

Higher crude prices increase India’s import bill, put pressure on the rupee and can add to inflationary pressures through transportation, manufacturing and fuel costs.

According to estimates cited by The Indian Express, India imports around 1.8 billion to 2 billion barrels of crude oil annually. Every $1 increase in the price of a barrel can add up to $2 billion to the country’s annual oil import bill if sustained.

A sustained decline in crude prices could therefore improve India’s external trade position, ease pressure on the current account and provide some relief to domestic industries.

However, a fall in international crude prices does not automatically translate into an immediate reduction in petrol and diesel prices. Domestic fuel prices also depend on the rupee-dollar exchange rate, refining and marketing costs, taxes and the pricing decisions of oil marketing companies.