What an extended war with Iran could mean for gas prices
Oil and gas prices are rising as conflict in the Middle East intensifies, prompting concerns here at home about the cost of fuel at the pump.
The national average for gas prices jumped this week to $3.25 a gallon, the highest level this year, according to AAA data.
Oil prices have surged this week, with U.S. benchmark West Texas Intermediate crude futures (CL=F) rising roughly 20% over the past few days to just below $80 a barrel. Brent crude futures (BZ=F), the international benchmark, also spiked this week.
“We saw an immediate knee-jerk reaction that so far has added $3.75-$5/bbl for crude. Brent, the international blend, was more impacted than WTI (West Texas Intermediate), the stateside blend,” said Tom Kloza, veteran energy analyst, advisor to Gulf Oil, and co-founder of OPIS.
In the aftermath of the strikes, shipping giants have halted operations and rerouted vessels originally intended to travel through the Strait of Hormuz — a crucial waterway for global oil shipments, as roughly 20% of global oil supply passes through it each day. Disruptions to this route can quickly impact global oil prices.
Analysts warn that a protracted war with Iran could lead to higher energy prices, potentially pushing Brent oil prices above $100 a barrel.
As a result, these mounting pressures abroad can have real impacts on the cost of fuel for U.S. drivers at home.
“This is something that’s going to start impacting gas prices starting today,” Patrick De Haan, head of petroleum analysis at GasBuddy, told Yahoo Finance on Monday. “The national average will start to tick higher. We could see gas prices by around lunch or even in the evening start to go up as gas stations are probably getting alerts themselves of a big price jump in the price that they pay.”
This comes amid a seasonal increase in gas prices, De Haan said, as most of the nation has already begun the transition to cleaner, more expensive summer gasoline blends.
The seasonal impact, plus “the attacks on Iran, is surely going to lead most motorists to see higher gas prices here, not just over the next few days, but really the next several weeks, if not two or three months.”
While the U.S. is technically the world’s top oil producer, accounting for about 22% of the world’s oil production, the Middle East plays a major role, accounting for close to one-third of global oil production, and Iran is one of the top 10 oil producers.
The biggest risk to oil prices is the Strait of Hormuz, according to De Haan. Located between Iran and the UAE, the strait is the world’s most vital passageway for oil distribution. According to the U.S. Energy Information Administration, around 20 million barrels of crude oil and petroleum products flow through the strait every day.
However, shipping traffic has come to a halt after Iran’s Revolutionary Guard issued threats to fire at any ship trying to pass. Given that Iran’s oil production accounts for more than 4% of the global share, and the strait that connects other major oil-producing countries to the rest of the world is located along its border, this type of disruption has the power to shake the global market and cause severe supply chain disruptions.
The U.S. has been more insulated since the 1970s gas crisis, when oil-producing countries that were part of OPEC put an embargo on the U.S. and other nations, causing oil prices to surge and leading to gas shortages. The Iranian Revolution in 1979 further reduced supply, driving prices even higher.
On a macro level, geopolitical tensions can have serious implications across the globe, as oil is priced globally and driven by supply and demand, as well as by speculative investors who can drive prices up or down. This can trickle down to impact everyday consumers’ wallets.
Watch: Who sets oil prices? Inside the wild world of energy trading.
As of now, the national average price for regular gasoline sits at $3.25, up from $2.98 a week ago and $2.89 last month, according to AAA.
It’s difficult to say exactly how gas prices will move over the coming days, weeks, and months; however, consumers should keep abreast of changes in oil prices, official statements by OPEC, U.S. sanctions or policy changes, and shipping activity to determine if their everyday costs may continue to be impacted.
In the meantime, there are also moves you can make to save money when you fill up.
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Fill up now if prices are climbing: Don’t wait for prices to continue rising. If you have an empty tank, fill up now to take advantage of the lowest possible price.
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Use gas price comparison apps: Finding the lowest possible fuel price in your area is easy with apps like GasBuddy and Gas Guru. Sometimes, taking a few extra minutes to compare prices in your area can save you several cents per gallon.
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Join a fuel rewards program: Loyalty to a specific gas station chain can help you earn discounts on every gallon of gas.
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Cut back on discretionary driving: Carpooling, biking, and walking can help cut down on discretionary driving and lower fuel costs during spikes.
