The U.S. and Iran are careening toward renewed war despite growing hopes this week that the Democrats' decisive midterm election victory will bring the conflict to an end, analysts say.
Crude oil prices fell more than 16% over the last five trading days after Vice President JD Vance publicly blamed the Republicans' stinging loss on the war. Vance's remarks raised questions about whether there is still support within the administration to continue the conflict with Iran.
The Democrats plan to use their comfortable majorities in both chambers of Congress to pass a war powers resolution that demands President Donald Trump end the war. But tensions in the Middle East have not eased since the election, and the Democrats aren't sworn in until January, the analysts say.
"Throughout the week, we were struck by the divergence between deepening escalation concerns in the Gulf and the headline driven off-ramp optimism of market participants thousands of miles away," Helima Croft, head of global commodity strategy at RBC Capital Markets, told investors in a note Friday.
Several oil tankers have come under attack near Oman since the election, killing one seafarer, according to maritime security agencies. Iran's Houthi allies in Yemen continue to fire missiles at neighboring Saudi Arabia.
Meanwhile, the U.S. military buildup continues, with a third carrier strike group en route to the region. The consulting group Rapidan Energy sees an 80% chance that fighting will resume as diplomacy stalls.
President Donald Trump told reporters Thursday that he will make a decision soon on whether to attack Iran again.
"I would rather not destroy the rest of the country if possible but maybe I'll have to," Trump said in the Oval Office. "You'll know soon enough."
"We're locked and loaded," the president said. "If we have to do the rest of the Iran thing, we're very much locked in."
Crude oil prices will vault above $100 a barrel again in response to renewed fighting, said Bob McNally, president of Rapidan and a former energy advisor to President George W. Bush. Brent crude, the international benchmark, was trading above $97 on Friday while U.S. crude was around $90.
"President Donald Trump is determined as a legacy item, almost at all costs, to prevent Iran from getting a nuclear weapon, having them give up their nuclear capabilities," McNally told CNBC's " Squawk Box Asia " on Friday.
"The Iranian regime, on the other hand, is not willing to do it," the analyst said. The escalation dynamic remains in place so long as that core difference between the U.S. and Iran persists, he said.
The risk of war is still alive, especially since Trump doesn't face anymore future elections, said Amos Hochstein, a former energy advisor to President Joe Biden. Gasoline, diesel and jet fuel prices would all surge as a consequence, Hochstein told CNBC's " Power Lunch " Friday.
Tehran has been taunting the Trump administration since the election. The social media account of Iran's Supreme Leader Mojtaba Khamenei said the "process of the U.S.'s collapse has accelerated" after the midterm results.
And Congress is unlikely to pass a war powers resolution until Democrats take control in January. Trump can veto such a resolution in any case.
The main leverage Congress will have is the power of the purse, Croft said. Government funding expires on Dec. 11 and negotiations for another continuing resolution could drag into 2027, she said. This would give Democrats more leverage when they take power in January, the analyst said.
"Importantly, deferring funding decisions would not immediately constrain Trump's ability to conduct military operations, but could significantly reshape the administration's longer-term funding outlook," Croft told investors.
Trump discussed diplomatic efforts to de-escalate tensions in the region with the emir of Qatar during a Friday phone call, according to Qatar's state news agency .
An unnamed senior Iranian official told Reuters on Thursday that Tehran sent a nuclear proposal to the U.S. through Qatar. Tehran will only discuss the proposal after the U.S. meets its demands, the Iranian official told Reuters.
Trump seemed to dismiss the diplomatic efforts Thursday.
"Iran will never have a nuclear weapon," the president said. "They're not doing anything without our approval. It doesn't make any difference what they're looking at," he said of the diplomatic efforts.
