What does the widening military conflict in Iran mean for oil prices? Here’s what the experts say.

about the Iran conflict’s potential impact on oil and gas prices. 

What’s the impact so far on oil prices?

After surging in early trading on Monday, prices of Brent crude, the international standard, dipped 0.1% to $76.98 by midday. West Texas Intermediate (WTI) crude, the U.S. benchmark, fell 3.8% to $71.06.

Still, oil prices remain above their level before the hostilities between Israel and Iran began over a week ago, when a barrel of WTI crude was close to $68.

Although Wall Street experts predict that Iran is unlikely to close the Strait of Hormuz, they note that ongoing tensions in the region could disrupt the energy market and send prices soaring. 

“Perhaps a bigger risk to the region’s oil supply would be Israeli air strikes on Iran’s oil production and export facilities, and/or attacks by Iranian proxy groups on oil production and export facilities in Iraq,” Eurasia Group analysts said in a June 23 report. 

Israel so far has avoided targeting Iran’s oil export industry. But if it were to do so, such strikes could disrupt the flow of several million barrels per day, sending Brent crude prices above $80 per barrel, according to the political risk consultancy. 

What would happen if the Strait of Hormuz is closed?

Because the Strait of Hormuz is just 21 miles wide at its narrowest point, it’s vulnerable to disruption. The channel connects the Persian Gulf to the Gulf of Oman and the Arabian Sea.

Although energy experts believe a closure of the Strait is unlikely, noting the adverse economic and geopolitical impact on Iran, they underline that a disruption to the flow of oil through the passage would send energy prices soaring. 

Interruptions to oil passing through the channel would severely impact markets in China, India, Japan, and South Korea, according to the Energy Information Administration (EIA), a branch of the U.S. Department of Energy.

The U.S. imports only about 7% of its oil through the Strait of Hormuz. But any interference with shipments passing through the area could impact the global oil market by stifling supplies, according to experts. 

“[W]hile Iran has not yet targeted the route, even a limited disruption would severely impact global supply,” Oxford Economics analysts said in a June 20 client note. “In a worst-case scenario, prices could spike to $130 per barrel and shave 0.8 percentage points off global GDP.”

The last time Brent crude topped $130 was in 2008, the result of a spike in energy demand and uncertainty in world energy supplies, according to the EIA. At the time, gasoline prices peaked at about $4.11 per gallon, or about $6.26 per gallon today after adjusting for inflation.

What’s the forecast for U.S. gas prices?

Despite the recent fluctuations in oil prices, experts predict that gas prices in the U.S. are likely to remain relatively stable in the near term. The Energy Information Administration (EIA) forecasts that the average price of regular gasoline will be around $2.85 per gallon in July, slightly higher than the current national average of $2.78 per gallon. 

However, if the conflict in the Middle East escalates and disrupts oil supplies, prices at the pump could rise. Gasoline prices are closely tied to the cost of crude oil, which accounts for about half of the retail price of gasoline. 

Analysts warn that any prolonged conflict or closure of the Strait of Hormuz could lead to a spike in gas prices, potentially surpassing $3 per gallon in the U.S. 

Consumers are advised to keep an eye on developments in the Middle East and be prepared for possible fluctuations in gas prices in the coming weeks. 

As the situation in Iran continues to unfold, the world is closely watching how the conflict will impact global energy markets and the prices consumers pay at the pump. The potential for higher energy costs remains a concern, but experts are hopeful that any disruptions will be short-lived and that prices will stabilize in the long run. Gas prices are on the rise for American drivers, with experts predicting an increase of 10 to 15 cents per gallon in the coming week. Analysts attribute this spike to tensions in the Middle East, which are impacting global oil prices.

Despite the expected increase, drivers in the United States are still paying less at the pump compared to a year ago. The current average gas price in the U.S. is $3.22 per gallon, down from $3.45 per gallon a year earlier, according to AAA.

The fluctuation in gas prices is a common occurrence, influenced by various factors such as global oil production, geopolitical events, and even weather patterns. In recent years, the U.S. has become more energy independent, which has helped stabilize gas prices to some extent.

As consumers continue to monitor gas prices and adjust their budgets accordingly, it’s important to stay informed about the factors influencing these fluctuations. Keeping an eye on global events, economic trends, and government policies can help predict future changes in gas prices.

While higher gas prices may put a strain on household budgets, it’s important to remember that they are just one part of the overall cost of living. By staying informed and making smart choices about transportation and fuel consumption, consumers can better navigate the ups and downs of the gas market.