What could happen to oil and gas prices as attacks on Iran persist

Oil Prices Poised for Sharp Increase Amid US and Israeli Actions Against Iran

Industry experts anticipate a significant jump in oil prices when futures trading resumes Sunday evening, following recent military strikes by the United States and Israel targeting Iran.

OPEC Responds with Production Hike

In response to the escalating situation, OPEC and its partners announced early Sunday that they will boost daily oil output by 206,000 barrels, resuming increases that had been on hold earlier this year. This follows a previous rise of 137,000 barrels per day in the fourth quarter.

While this production uptick may help soften the anticipated spike in oil prices as markets open, analysts remain skeptical that it will be enough to stabilize prices in the face of ongoing geopolitical tensions.

Market Reactions and Price Trends

Oil prices have already been climbing in anticipation of potential conflict involving Iran. On Friday, Brent crude—the global oil benchmark—climbed 2.9% to reach $72.87 per barrel.

The extent of future price increases will largely depend on the duration of military operations and the conflict’s effect on the strategically crucial Strait of Hormuz, which is under Iranian influence.

Military Developments and Global Impact

Former President Trump stated on Truth Social that targeted airstrikes would persist throughout the week or as long as necessary to achieve peace in the Middle East and beyond, emphasizing that the campaign would be both extensive and sustained.

Below is a closer look at the oil market dynamics as the conflict unfolds.

Iran’s Role in the Global Oil Market

Iran is a key player in the international energy sector, serving as a major oil producer and exporter, particularly to countries like China. According to OPEC, Iran possesses the world’s third-largest proven oil reserves and controls a vital shipping corridor for crude exports.

The Strategic Importance of the Strait of Hormuz

The Strait of Hormuz, a narrow passage off Iran’s southern coast, serves as the primary route for oil shipments from major producers such as Saudi Arabia and Kuwait to global markets. Iran holds sway over the northern part of this waterway. The US Energy Information Administration estimates that roughly 20 million barrels of oil—about 20% of global daily output—pass through the strait each day, making it a critical chokepoint for energy supplies.

Iran has previously threatened to block this crucial route during disputes with the US and other Western nations. During a 12-day conflict with Israel last year, Goldman Sachs projected that oil prices could exceed $100 per barrel if the strait experienced prolonged disruption.

Bob McNally, president of Rapidan Energy Group, told CNN that closing the Strait of Hormuz would trigger a severe energy crisis. He also warned that a more severe scenario would involve attacks on Saudi oil facilities, which could take significant time to repair due to specialized equipment.

China’s Dependence on Iranian Oil

Asian economies, especially China and India, would be particularly vulnerable if the Strait of Hormuz were shut down. Their efforts to secure alternative oil sources could push global prices even higher. Even if only Iranian exports are disrupted, the effects would ripple through the worldwide market.

Clayton Seigle, a senior fellow at the Center for Strategic and International Relations, noted in a recent research note that because oil is a globally traded commodity, any supply interruption affects prices everywhere. He estimated that the loss of Iranian oil could prompt China to seek alternative suppliers, potentially driving crude prices up by at least $10 to $12 per barrel.

Gasoline Prices and Inflation Concerns

As the world’s sixth-largest oil producer, any conflict involving Iran is likely to send oil and gasoline prices soaring, contributing to broader inflationary pressures, according to market experts.

McNally of Rapidan Energy Group predicted that both Brent crude and West Texas Intermediate would surge when markets open, with refined product margins and other gas benchmarks also expected to rise sharply.

Andy Lipow, president of Lipow Oil Associates, suggested that oil prices could climb by $5 per barrel or more.

Currently, the average price of gasoline in the US stands at $2.98 per gallon, slightly above recent lows not seen since 2021. Prices had dipped below $3 in December for the first time in four years, a development the Trump administration had previously highlighted. However, the ongoing conflict with Iran threatens to reverse these gains.

When Israel launched strikes against Iran last June, Brent crude experienced its largest single-day increase since March 2022. Prices continued to rise as the US became involved, but dropped sharply following a ceasefire announcement.

Reporting contributed by David Goldman and Matt Egan.

This article has been updated with new information.