Oil is headed for its biggest weekly decline since the Covid-19 pandemic after a Democratic blue wave in US midterm elections eased concerns about President Donald Trump escalating conflict in the Middle East.

The price of Brent crude, the global benchmark, has tumbled by about 20 per cent this week to trade at around US$95 barrel on Thursday. US West Texas Intermediate has dropped by 16 per cent to about US$88.

Prices plunged after US Vice-President J.D. Vance called for an end to the war in Iran, saying it was the main cause of a nationwide polling rout that cost Republicans control of both houses of Congress. Trump has also backed away from threats to ramp up action against Iran as Americans contend with record fuel costs that stem partly from the conflict.

“We seem to be getting everything we want” in the Iran stand-off, Trump told the Financial Times on election day. “We’re locked and loaded if we need to go, but there may be no reason for it.”Lower oil prices and Chinese government support also fuelled a second day of gains for mainland stocks on Thursday. The benchmark CSI 300 index rose by 0.3 per cent after adding 2.3 per cent on Wednesday. The tech-focused Star 50 has surged by 12 per cent in two days. Hong Kong’s Hang Seng Index reached its highest point since late September.

China called on the US and Iran to resume talks and reach a “comprehensive agreement that includes the nuclear issue” after a meeting on Monday between President Xi Jinping and Oman’s Sultan Haitham bin Tariq. The joint China-Oman statement also pushed for free navigation in the Strait of Hormuz, a vital oil shipping lane between Iran and Oman. China’s top diplomat, Wang Yi, similarly backed negotiations in talks with Ali Bagheri Kani, deputy secretary of Iran’s Supreme National Security Council, on Monday.

Zhai Jun, China’s special envoy on the Middle East Issue, will also visit Iran, Oman and Saudi Arabia this month. Separately, China and Oman signed 14 deals including cooperation on the BeiDou satellite navigation system, artificial intelligence (AI) and the digital economy.

The US midterm elections may bolster Chinese AI companies by curbing American rivals’ plans to build new data centres. “A slowdown in the US could be a win for China,” said Gary Ng Cheuk-yan, a senior economist at Natixis. Reduced construction plans could maintain high prices for AI services from US providers, giving low-cost Chinese operators a chance to win customers, he said. Democratic candidates generally pledged to slow or halt construction of new data centres as voters complained about facilities driving up power prices, draining water supplies and providing few jobs.

Israel became the first country to send an ambassador to Somaliland, undeterred by opposition from China and others to recognition of the East African region. China strongly opposes independence for Somaliland, viewing it as separatism, a breach of the one-China principle and a threat to the country’s naval presence in neighbouring Djibouti. Somaliland, which broke away from Somalia in 1991, sits off the Bab el-Mandeb Strait, a narrow waterway that carries around 10 to 12 per cent of global trade. The strait controls traffic in and out of the Red Sea, which has become a key alternative to the Strait of Hormuz for Middle East oil.

Stalled diplomacy: “It’s been a few weeks or even months [in which] China really hasn’t done much diplomatically towards … ending the war,” [Al Jazeera’s Katrina Yu] said. The meetings [with Iran and Oman] on Monday appear to illustrate that China is growing impatient with the lack of progress. “I think China is very frustrated, and it wants to be seen to enter [the process],” Yu said. (Al Jazeera) Do nothing: The most surprising foreign policy option Trump could take during his lame-duck period … is doing nothing at all.

The president has busied himself with remaking Washington DC in his own image by redecorating the Oval Office, designing a White House ballroom and attempting to remodel the Kennedy Centre. There is a chance that he could spend his last two years in office issuing pardons, trying to prosecute political enemies on the side and erecting monuments to himself. Given the alternatives, inaction on foreign policy may well be the best-case scenario for Trump’s lame-duck years (Foreign Affairs, opinion) Effective blockade: As messy as the conflict has been, the US blockade of Iran and the wider Operation Economic Outcast are going in the direction that the United States wants.

Iran is imploding economically. Although the US spot price has risen above US$100 per barrel at times, oil is still priced well below previous peaks once you adjust for inflation. The history of the last Iran nuclear deal shows that economic pressure campaigns have a better record when they are aimed at achieving more modest objectives. (Rand Corporation) Iran won: “The Democrats didn’t win the midterms,” Trita Parsi, co-founder of the anti-interventionist Quincy Institute, wrote on social media.

“Iran did.”But any perceived victory for Iran isn’t guaranteed to last long. Although President Donald Trump repeatedly vowed not to resume an all-out assault on Iran before [the] midterms, he made no such promises for after Tuesday’s vote and even floated that he would “finish the job”. (Politico) Steeper costs: “A Democratic sweep changes the political cost of continuing the Iran war. The White House keeps its discretionary powers over strikes, blockades and sanctions licences. What changes, however, is the price of using them,” [Claudio Galimberti, chief economist at Rystad Energy,] said.

“With both chambers [of Congress] now capable of passing resolutions, holding back war funding and delaying confirmations, the administration faces a shorter political runway and greater institutional pressure to find a [peace] deal.” (Financial Times) The Republican drubbing in the midterm elections has given China and other Asian nations unexpected relief from the global oil crisis.

Few in the Trump administration, probably including the president himself, will have much appetite to risk new disruptions in global energy markets after a historic electoral collapse largely driven by the war on Iran and record fuel prices. Victorious Democrats have also signalled that they will use their newly won powers to curb the conflict.

“This war must end,” said Senate Democratic leader Chuck Schumer. “It must end.”The prospect of an Iran peace deal has eased concerns about Middle East oil supplies, driving down prices worldwide. It’s a particular boon to Asian economies, including Japan, South Korea and China, which faced the biggest risks from shipping disruption in the Strait of Hormuz. Before the war, 87.9 per cent of oil and 83 per cent of liquefied natural gas (LNG) shipped via the waterway was destined for Asian ports. China imported 58 per cent of its crude oil via the strait before the war.

Oil markets stabilised in the months before the election as a global supply squeeze greatly eased. Exports of oil from the Persian Gulf returned to pre-war levels in October, minus Iranian shipments that have been cut off by a US naval blockade, according to Kpler.

Indeed, global supply exceeded demand by 1.4 million barrels per day last month, thanks to recovering Middle Eastern flows, increased production and slower consumption, according to JPMorgan.

“For all the disruption to global oil supply chains – from production and refining to shipping and trade – the oil market has arrived at a remarkable destination: a surplus,” analysts at the bank said in a note cited by Bloomberg News.

Unfortunately, crude oil isn’t the only problem. Refined products like petrol and diesel remain in short supply globally, driving up consumer prices and producer costs. In the US, stockpiles of distillates – which include diesel – fell below 100 million barrels last week, the lowest level since 2003, Bloomberg reported citing government data.

China has weathered global fuel shortages by curbing exports and tapping its world-leading crude reserves. Still, the country is now more exposed to global crude prices after the war cut off a steady flow of cheap sanctioned Iranian supplies shipped via third countries to teapot refiners in Shandong province.

Chinese refiners have taken advantage of greater availability of Middle Eastern crude to start to rebuild inventories after record national drawdowns. Oil shipments from the region jumped by 25.7 per cent month on month in September to 13.8 million tonnes, a third consecutive increase, according to Chinese customs data.

The refiners may also have secured more than 80 million barrels of Saudi crude, as well as taking part in spot tenders by other regional suppliers, such as Abu Dhabi and Iraq, energy researcher Kpler said last month. The post-midterm slump in crude prices will no doubt spur further opportunistic buying.

Oil reserves in China fell at a rate of about 1.6 million barrels per day in September as refinery throughput rose above 14 million barrels per day, according to Kpler. Those drawdowns were likely to persist as cargoes of Iranian oil outside the Strait of Hormuz before the war had all been discharged, it said. Drawdowns were focused on commercial inventories rather than strategic reserves.

Still, China is far from running short of oil. The country holds about 1,124 million barrels, or around 80 days of refinery crude requirements, based on Kpler data.

The bigger issue is petrol and diesel. Combined inventories held by state-run refiners are now almost 2 million barrels below the minimum requirements set by the National Development and Reform Commission, Energy Aspects said in a note. China’s state-run oil refiners were likely to keep run rates elevated in December to rebuild fuel inventories and secure additional export approvals, it said.

That should help to keep a lid on global fuel prices, provided that there is no unexpected resumption of large-scale conflict in the Middle East.