Oil Slides Toward Worst Week Since 2020 as Democratic Sweep Bets on Iran Exit

By Olivia Hart

Brent crude lost nearly 9% on Wednesday to settle at $94.62 a barrel, putting global oil on track for its worst weekly decline since April 24, 2020. The week-to-date loss stands at almost 17%, according to Dow Jones Market Data. U.S. benchmark West Texas Intermediate settled at $88.12, down about 8% for the session and 15% lower week to date.

The trigger was political. Democrats won control of both the House of Representatives and the Senate in the midterm elections and are expected to challenge Republican President Donald Trump's handling of the U.S.-Israel war with Iran. Investors responded by selling oil and buying equities: the Dow Jones Industrial Average rose 2.9%, the Nasdaq Composite gained 2.1% and the S&P 500 climbed 1.9%.

What Are Traders Actually Pricing In?

"The sharp drop in oil and the broader stock market's rise both reflect one clear bet: the Democratic midterm sweep is rewriting the Iran war playbook in real time," said Manish Raj, managing director at Velandera Energy Partners. That makes the "political price of continuing the conflict too steep for the White House," he added.

Oil is in "freefall" as markets price in a faster path to restored Strait of Hormuz crude flows, rather than another round of escalation, according to Raj. "This is a classic risk-on move that says investors now expect less geopolitical drag ahead," he said.

The move did not start on Wednesday. Brent and WTI both lost more than 7% on Monday on reports of indirect mediation efforts between the U.S. and Iran. U.S. Vice President J.D. Vance added fuel in a post on X on Wednesday, blaming the Republican losses on the Iran war.

His "blunt admission that the war cost Republicans the election only poured gasoline on the fire," Raj said. "It confirmed what the market already smelled: The calculus has shifted towards peace and lower prices at home."

The real driver, Raj argued, is not the election result itself but the "sudden belief that Congress will make prolonged war funding difficult and further strikes politically edgy." In his words, "All these point to a lower dollar sign at the [gasoline] pump."

Takeaway: traders are betting congressional control translates directly into war-funding friction — a political thesis, not yet a physical-supply fact.

Does a Ceasefire Actually Follow?

Not necessarily soon. The reality of a diplomatic solution in the near term to the Iran war "may still remain quite distant," said Jordan Rizzuto, managing partner and CIO at GammaRoad Capital Partners.

Jeremy Richardson, senior portfolio manager, global equities, at RBC Global Asset Management, wrote in a client note that Democrat congressional control over military spending provides a new "vector to influence foreign policy." Arguably, "the midterms have increased incentives for agreeing to a ceasefire which, if delivered, would provide relief to energy prices, inflation, interest rates, and corporate earnings," he wrote.

Note the conditional. Richardson's relief scenario depends on a ceasefire that has not happened, and Rizzuto flags the distance between market pricing and diplomatic reality.

What About Pump Prices and Inflation?

Retail gasoline prices have already declined in the latest week, but they remain well above year-ago levels. They may still need to fall further to restore balance in physical supply and demand in the coming months, Rizzuto said.

Crack spreads — the gap between crude-oil prices and refined-product prices — have retreated from multidecade highs, offering some relief for the inflation outlook and potentially supporting equities, Rizzuto noted. But they remain elevated, suggesting price pressures in refined-product markets have yet to fully subside.

Inflation may be starting to ease with oil prices falling, but it still has "quite a bit further" to go before it meaningfully comes off its current level, Rizzuto said.

Takeaway: a 17% weekly crude decline improves the inflation arithmetic, but refined-product markets have not yet followed crude all the way down.

The near-term test is whether Congress moves on war funding as markets expect — or whether the ceasefire bet, like Monday's mediation reports, proves premature. Isabel Wang contributed to this report.

This article was prepared in an editorial partnership format. Analysis reflects sources cited within the original MarketWatch report.