[Source – reuters.com]
Oil prices surged more than 3% on Tuesday following an Iranian missile strike on Israel, prompting experts to predict an increase in U.S. gasoline prices. According to AAA data, analysts estimate that drivers might see an uptick of 10 to 15 cents per gallon, with the current national average standing at $3.20.
Potential for Significant Price Increases
The missile attack is seen as a retaliation by Iran for a series of assassinations targeting Hezbollah leaders in recent weeks. An Israeli official stated that Israel would deliver a significant response to the Iranian aggression. The escalating conflict between the two nations has the potential to drive oil and gas prices considerably higher, as noted by Ramanan Krishnamoorti, a professor of petroleum engineering at the University of Houston. He emphasized the clear impact this situation could have on gas prices, which is expected to be substantial.
Control Over Key Shipping Routes
While sanctions have hindered Iranian oil production in recent years, Iran maintains control over critical shipping routes such as the Strait of Hormuz, a vital passageway for about 15% of the world’s oil supply. The potential for further attacks could also affect the Suez Canal, another crucial conduit for crude oil transport, echoing previous disruptions caused by Houthi attacks on freight vessels earlier in the conflict. Krishnamoorti indicated that these developments could complicate the global oil supply chain.
Current Oil Market Landscape
Despite the recent rise in oil prices, they remain significantly lower than the peaks experienced in 2022. The soaring demand during the post-pandemic economic rebound, combined with supply issues stemming from the Russia-Ukraine conflict, had previously driven prices to record highs. However, gas prices have seen a notable decline in recent months, thanks in part to reduced demand as summer travel wanes.
In 2023, the U.S. achieved a record crude oil production level, averaging 12.9 million barrels per day, as reported by the U.S. Energy Information Administration. This surge in domestic production is expected to mitigate some of the impacts of potential supply disruptions. However, Timothy Fitzgerald, a professor of business economics at the University of Tennessee, cautioned that the global market determines oil prices, and a significant supply shock could not be fully absorbed by U.S. output.
Fitzgerald noted that the current situation is less concerning compared to past decades, highlighting the U.S.’s shift to being a net exporter of crude oil. He also suggested that if tensions deescalate, crude oil prices could quickly revert to their previous levels.
Risks of Regional Conflict
Here’s how Iranian missile strikes could impact oil prices
While the recent spike in oil prices occurred during a relatively calm period in the U.S. gasoline market, experts warn that a broader regional conflict in the Middle East could destabilize the market and trigger price hikes.
In response to the missile attack, Republican Senator Lindsey Graham condemned Iran’s actions, describing them as a breaking point. He urged the Biden administration to respond decisively, advocating for targeted actions against Iranian oil refineries. Graham expressed solidarity with the people of Israel during this tense time.
President Biden and Vice President Kamala Harris are actively monitoring the situation from the White House Situation Room. Biden has directed the U.S. military to assist in Israel’s defense against Iranian missiles, further underscoring the gravity of the current geopolitical climate.
Conclusion
As tensions between Iran and Israel escalate, the ripple effects on global oil prices and U.S. gasoline costs are becoming increasingly apparent. The interplay of geopolitical events, market dynamics, and domestic production levels will play a crucial role in determining how this situation unfolds in the coming weeks.
