How long will it take for U.S. gas prices to react to Middle East conflict?
The conflict between Israel and Iran has the potential to considerably disrupt global energy markets, with each nation attacking the other’s oil and gas infrastructure. Images of blazing oil fields, refineries and distribution hubs have sent prices of fuel upward. But at the moment, the impact on energy costs in the United States is relatively muted. That could change if the conflict escalates.
Are gas prices in the U.S. going up because of this conflict?
Yes. After Israel attacked Iran last week, oil prices jumped about $10 a barrel. While they remain relatively low at around $74, the jump translates into a price increase at the pump for U.S. consumers of roughly 20 cents per gallon, according to the research firm ClearView Energy Partners. Drivers will start to feel that in the coming days. There is typically a lag of a few days between spikes in oil prices and what drivers pay at the pump, as gas stations run through their inventory. The average cost of a gallon of regular nationwide is currently $3.14, according to AAA. Gasoline would still be cheaper than it was this time last year even with a 20-cent price jump.
How high are they going to go?
Unclear. Analysts warn that there are scenarios in which they could soar quite high, pushing prices at the pump past $4 per gallon. But they are not necessarily expecting things to play out that way. Many right now anticipate the price of oil will not go beyond $80, meaning the shock at the pump for U.S. drivers would be limited to an increase of about 40 cents from the prices today.
What could force prices past $4 per gallon?
The big question mark right now is whether Iran will pursue a blockade of the Strait of Hormuz, which “risks tipping oil markets into heavy undersupply,” according to Janiv Shah, vice president of commodities markets at Rystad Energy. While Israel and Iran account for only 2% of global oil supply, the Middle East overall supplies as much as 12% of the world’s oil. A closure of the strait by Iran would disrupt the flow of much of that. But it is not the U.S. and Europe that would be most heavily impacted. China and India buy as much as 80% of the oil that goes through the strait. Rystad notes that while Iran has threatened to block the strait before, it has never successfully done so. A closure would create economic hardship for China, a key Iran ally, further isolating Iran politically and economically.
What about natural gas supplies?
This is being watched closely. Israel attacked the massive South Pars gas fields in Iran, turning parts of it into a fiery inferno. Iran does not export natural gas, so a loss in its capacity to produce it will not have much of an impact on world markets. But the larger field is shared with Qatar, which is a major exporter of liquefied natural gas. If the damage spreads into Qatar’s facilities, markets will be disrupted. Also, 20% of the global LNG supply goes through the Strait of Hormuz. A closure of the strait could send LNG prices sharply upward around the globe.
Can the U.S. and other nations do anything to keep prices down?
Yes, but such measures could take time. In the event of a closure of the strait, U.S. producers could export more oil and natural gas to replace lost supplies. But increased exports do not happen overnight. Especially in the case of oil, it requires adding infrastructure to increase pumping. The White House is also expected to put pressure on OPEC+ to pump more oil if flows become constrained. And the International Energy Agency says it is prepared to release some of its own reserves into the market should that become necessary to help stabilize supplies.