Oil prices rose 10% as markets opened Sunday evening, underscoring the economic risks of the widening conflict in the Middle East.
The U.S.-Israeli attacks on Iran could severely restrict supplies from a key oil and gas-producing region. Even if the disruption is brief, it will almost certainly make energy more expensive worldwide. The magnitude of those price increases and how long they last will depend on what the United States and Israel do next — and how Iran responds.
International oil prices had climbed about 20% this year, nearing $73 a barrel Friday. On Sunday, they crossed $80 a barrel.
The longer that the war disrupts the energy trade, the bigger the risk that consumers will face higher prices, not just at the gas pump but in a broad array of products, at a time when many people are already worried about the economy. That could cause domestic political blowback for President Donald Trump, whose approval ratings have tumbled in part because many Americans are concerned about inflation.
By Sunday, the flow of tankers carrying energy products through the Strait of Hormuz, a narrow waterway off Iran’s southern coast, had slowed to a trickle. About one-fifth of the world’s oil and a significant amount of natural gas usually pass through the choke point daily.
But in a crucial sign for oil markets, no major energy assets in the region appeared to have been struck as of late Sunday in Iran.
“The biggest question is what, if any, oil installations get damaged,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University. “If the answer to that is none, my opinion is the price of oil will come back down.”
The United States may be the world’s largest producer of oil and natural gas, but that does not fully insulate it from market shocks since those commodities are traded globally.
This is the second time in two months that the United States has taken military action in an oil-rich country. Prices barely moved in January after U.S. forces captured Nicolás Maduro, the president of Venezuela, partly because that country accounts for less than 1% of the world’s oil supply.
Not only does Iran produce more oil, but so do its neighbors, and the country sits at the mouth of the Persian Gulf, a vital oil and natural gas trading route.
Until this point, one of the main concerns in the global market had been that the world was producing a lot more oil than it needed. That oversupply is likely to blunt any increase in prices, at least for a while. Indeed, on Sunday, a group of oil producers known as OPEC+ said it planned to increase output modestly in April.
“Americans will see some impact at the gasoline pump,” said Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University in New York. “But even with a massive strike on Iran that killed the leader of the country, at this point we’re still talking about oil prices that are well within historical norms — and much less than one would have ever expected with a strike of this magnitude.”
Higher prices for oil traded on commodity futures markets will not immediately lead to a big increase in prices at gas pumps in the United States. But fuel prices tend to respond relatively quickly, within a matter of days or weeks.
The pace “will really depend on how severe the supply constraint reveals itself to be,” said Ken Medlock, an energy fellow at Rice University’s Baker Institute in Texas.
In the week after Russia invaded Ukraine in February 2022, oil prices climbed around 20%. But the average price of a gallon of regular gasoline in the United States only rose about 3% in that time, according to AAA motor club data. It was not until the following week that drivers started to see significantly higher gasoline prices. U.S. gasoline prices eventually hit a record above $5 a gallon several months later, in June.
As a general rule of thumb, for every $10 a barrel increase in the cost of oil, the price of gasoline that consumers see at local stations might rise 20 to 30 cents a gallon, said Jaffe. Gasoline cost an average of $2.98 a gallon in the United States on Sunday, according to AAA.
The Russian invasion of Ukraine also drove up the price of natural gas, a key fuel for the power sector and heavy industry. That contributed to increases in the prices of electricity in Europe, the United States and elsewhere. A lot of liquefied natural gas is shipped through the waters around Iran, and a sustained disruption of those flows could, over time, also hurt the global economy.
On Sunday, attention remained on the Strait of Hormuz, where videos verified by The New York Times showed a tanker ablaze while anchored near Oman. Another vessel was also reportedly struck in the area, and a separate projectile was said to have exploded near a third ship.
In other conflicts, naval vessels have escorted commercial ships that have come under threat, though a Defense Department spokesperson said the United States had no such plans for the Persian Gulf.
As of Sunday afternoon in Iran, just six tankers used to carry energy products had traveled through the strait, down from 65 on Friday, according to S&P Global Energy’s Commodities at Sea.
This article originally appeared in The New York Times.
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