With the war in Iran, experts predict even higher gas prices before they can come down
Gas in the United States reached an average of $3.539 a gallon on Tuesday, up more than 17% since the start of U.S.-Israeli attacks on Iran.
Gas prices are up and oil fields are aflame as the war in the Middle East continues into its second week.
Gas in the United States reached an average of $3.539 a gallon on Tuesday, according to AAA motor club, up more than 17% since the start of U.S.-Israeli attacks on Iran on Feb. 28.
Oil prices on Sunday, meanwhile, eclipsed $100 a barrel for the first time since Russia’s invasion of Ukraine, trading near $120 a barrel early Monday before easing to just below $100.
The increases followed the U.S. crude price climbing 36% and a barrel of Brent crude, the international standard, rising by 28% the previous week.
These increases also come as many parts of the Northern hemisphere are preparing for the summer driving season to begin.
“Refineries are beginning the process of producing summer-blend gasoline which contains pricier additives to help reduce evaporation during warmer months,” AAA said in a Feb. 26 press release. “Gas demand is also expected to increase next month as spring break season kicks off and more drivers take road trips.”
While the initial sticker shock is something to contend with and something that people planning their vacation will no doubt be thinking about, there are likely to be bigger problems the longer the war continues, experts said.
“In the short run, oil and gas prices will go up because of production and transportation dislocations,” said Ravi Ramamurti, university distinguished professor of international business and strategy at Northeastern University. “In the long run, this is likely to slow [economic] growth everywhere, including the U.S., and add to inflationary pressures.”
U.S. President Donald J. Trump said on the social network platform Truthsocial that the “short term oil prices” are “a very small price to pay” and prices will drop once the Iran mission has concluded.
However, experts worry that the energy infrastructure and production facilities in the Middle East are at risk of longer disruption.
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Nada Sanders, distinguished professor of supply chain and information management at Northeastern, said that the markets are at “panic levels” with uncertainty related to the oil supply chain.
A near complete shutdown of the Strait of Hormuz, which Sanders calls “one of the single most important chokepoints in the global energy system,” is of particular concern. The waterway between Iran to the north and Oman and the United Arab Emirates to the south normally carries approximately one-fifth of the world’s oil trade. It also carries approximately 20 million barrels per day to major Asian markets, including a quarter of China’s daily demand, according to Rystad Energy, a research and energy intelligence company.
“The system can probably absorb a short shock,” Sanders said. A disruption on the scale of multiple weeks would be a struggle, she said.
Energy facilities have also been at the receiving end of attacks.
Iran has bombed energy infrastructure throughout the Persian Gulf since the start of the war, albeit with mixed success. On Sunday, Israeli airstrikes hit oil fields in Iran and sent plumes of black smoke over the capital of Tehran.
Ramamurti said that the U.S. is in a better position to weather the disruption to oil production and supply than Europe and Asia, as the U.S. is a net exporter of energy, which means the country exports more energy products than it consumes.
There is also a potential for oil prices to fall “if President Trump gains control over Iranian oil, drops sanctions, and boosts Iranian exports,” Ramamurti said.
Sanders agreed that a diplomatic deal or sanctions relief could cause prices to fall, but fall only “modestly.”
She also added a caveat.
“If instead the U.S. physically seizes, occupies or directly controls Iranian oil infrastructure or exports… Prices would rise sharply, because traders would treat that as a major war escalation,” Sanders said.
It also “would not be an easy transition” for Iranian oil to enter into mainstream markets, Sanders said, requiring sanctions to be removed, and for banking, insurance, shipping contracts, compliance systems and customer relationships to be restored.
Ultimately, experts said energy prices would really depend on the duration of the war.
“If the conflict does not keep Hormuz materially closed for long, I would expect prices to ease,” Sanders said. “Long term will likely see softer than current spikes, unless the conflict fundamentally removes Gulf supply for an extended period.”
