Global financial markets witnessed a significant change in sentiment after the US midterm election results, with Wall Street closing sharply higher and crude oil prices crashing more than 8% on Wednesday. Investors expect the Democratic Party's sweeping victory to increase pressure on President Donald Trump to ease the conflict involving Iran, potentially reducing concerns over global energy supplies.
Oil prices continued their downward movement on Thursday, with Brent crude slipping below $95 per barrel. In the latest market snapshot, Brent was trading at $93.83 per barrel, down 0.83%, while US West Texas Intermediate (WTI) crude stood at $87.05, lower by 1.21%.
Compared with Wednesday's reported levels of $102.84 for Brent and $95.95 for WTI, the two benchmarks have declined approximately 8.8% and 9.3%, respectively.
The steep fall followed the Democrats' victory in securing control of both the US Senate and House of Representatives, dealing a major electoral setback to Trump's Republican Party.
WHY ARE CRUDE OIL PRICES FALLING?
The Democratic victory has fuelled expectations that a Congress controlled by the party could limit Trump's military options and push his administration towards negotiating an end to the US-Israeli conflict with Iran.
The conflict had previously driven crude prices higher because of concerns about possible disruptions to energy shipments through the Strait of Hormuz, one of the world's most important oil transportation routes.
Investors are now evaluating whether the changed political balance in Washington could make it more difficult for Trump to continue the conflict, potentially reducing risks to global oil supplies.
According to a Reuters report, Brent crude declined 8.7% to $94.62 per barrel on Wednesday, while US WTI fell 8.3% to $88.12. Both benchmarks touched their lowest levels since August 31.
Trump said the US had no immediate plans to attack Iran and acknowledged that the conflict had contributed to his party's electoral defeat. However, analysts have warned that the situation remains unpredictable, with negotiations between Washington and Tehran still some distance from a breakthrough.
IRAN EASES STRAIT OF HORMUZ RESTRICTIONS FOR FOUR COUNTRIES
Developments concerning energy transportation have added to expectations of improved supply conditions. Iran has removed transit restrictions in the Strait of Hormuz for vessels from India, China, Iraq and Qatar, according to an Economic Times report.
Amir Hayat Moqaddam, deputy chairman of the Iranian Parliament's national security and foreign policy committee, said ships belonging to these four countries would be permitted to cross the strategic waterway without restrictions.
According to the report, the decision reflects shared interests between Iran and the four countries. Moqaddam also indicated that allowing Indian vessels to pass through the strait would help facilitate medicine imports from India.
People familiar with the developments told the Economic Times that the Indian government had not paid any transit charges for vessels whose passage was negotiated by the Ministry of External Affairs.
India and Iran had conducted negotiations between March and June to secure passage through the Strait for India-bound vessels transporting energy supplies.
The easing of restrictions could provide some relief to India's concerns surrounding oil and gas imports, particularly given the strategic importance of the route for global energy shipments.
WALL STREET RALLIES AFTER DEMOCRATS' SWEEP
The sharp decline in crude prices coincided with a strong rally in American stock markets on Wednesday.
Wall Street ended the session significantly higher after Democrats secured control of both chambers of Congress, reducing some political uncertainty and boosting investor confidence.
The S&P 500 climbed 1.6%, while the Dow Jones Industrial Average surged 3%, adding 1,569 points. The Nasdaq Composite also advanced 1.4%, according to an Associated Press report.
Lower oil prices further supported market sentiment by easing concerns about inflation and rising energy expenses.
However, gains were not visible across every segment of the market. Energy stocks faced selling pressure as crude prices declined. Some data centre and artificial intelligence infrastructure companies also fell amid concerns that Democratic gains could lead to tighter regulations and restrictions on data centre expansion.
OIL INDUSTRY CONCERNED ABOUT POSSIBLE WINDFALL TAX
Despite the decline in crude prices, the US energy industry is facing another potential challenge following the Democrats' electoral victory: the possibility of a windfall tax on oil companies.
A Moneycontrol report citing Bloomberg said oil industry executives and lobbyists were concerned that Democrats could use their control of Congress to push for additional taxes on extraordinary profits earned by energy companies during the Iran conflict.
Democrats had previously introduced legislation proposing that oil companies compensate consumers when fuel prices remain elevated. The proposal could now become part of wider negotiations between the party and Trump.
A bill introduced in March by Senator Sheldon Whitehouse and Representative Ro Khanna proposes imposing a quarterly tax on oil companies whenever Brent crude trades above its average 2025 price of approximately $68 per barrel.
The revenue generated through the proposed tax would be used to provide rebate cheques to consumers.
Rapidan Energy Group has estimated a 30% probability that Democrats could secure the passage of an oil windfall tax or reduce tax benefits available to fossil fuel companies after taking control of Congress.
However, the proposal remains uncertain. Trump has not explicitly supported the introduction of such a tax, while a White House official dismissed speculation about a possible agreement with Democrats on the issue as baseless.
The American Petroleum Institute has also opposed the proposal, arguing that additional taxes could discourage investments in domestic energy production.
For global financial markets, the immediate question is whether the political shift in Washington will help move the Iran conflict towards a diplomatic resolution.
A prolonged decline in crude oil prices could ease inflationary pressures and benefit major oil-importing economies such as India. However, any setback in diplomatic negotiations or renewed military escalation could quickly reverse the recent fall in prices.
