NEW YORK — The price of oil has surged dramatically, showing no signs of slowing down, following major military actions by the U.S. and Israel against Iran that have triggered a broader conflict in the Middle East.
This escalating conflict has impacted nearly every nation in the region, with missile and drone strikes causing widespread damage. Consequently, ships transporting around 20 million barrels of oil daily are now stranded in the Persian Gulf, unable to safely navigate the strategic Strait of Hormuz, which borders Iran to the north.
The disruption in shipping and the damage to critical oil and gas infrastructure in the Middle East have significantly disrupted the supply chain from some of the world’s largest oil producers. For instance, Kuwait announced on Saturday that it would cut its oil production as a “precautionary” response to the ongoing war, a move that could further unsettle global energy markets.
Oil prices soared past $90 a barrel on Friday, with U.S. crude closing at $90.90, marking a 36% increase from the previous week. Meanwhile, Brent crude, the global benchmark, rose 27% over the same period, reaching $92.69.
This price hike is set to impact what consumers and businesses pay for gasoline, diesel, and jet fuel, with some drivers already noticing the pinch at the pump.
“It’s crazy. It’s not needed, especially at a time when people are already struggling,” remarked Mark Doran, while refueling in Middlebury, Vermont, on Friday. “With all this turmoil, it’s not unexpected. There seems to be no end in sight for any conflict the U.S. gets involved in over there, and the idea that a quick resolution is possible seems far-fetched. The Middle East is a complex region that the U.S. cannot simply solve.”
President Donald Trump said Monday that the U.S. expected its military operations against Iran to last four to five weeks but has ” the capability to go far longer.” On Friday, Trump appeared to rule out talks with Iran absent its “unconditional surrender.”
“The more news we get, the more it seems like this is going to last a really long time,” said Al Salazar, head of macro oil and gas research at Enverus.
In the U.S., a gallon of regular gasoline rose to $3.41 on Saturday, up about 43 cents from a week ago, according to AAA motor club. Diesel was selling for $4.51 a gallon Saturday, up about 75 cents from last week.
The price shocks were felt even more heavily in Europe and Asia, markets that rely more heavily on energy supplies from the Middle East. Diesel prices doubled in Europe, and jet fuel prices rose by close to 200% in Asia, according to Claudio Galimberti, chief economist at Rystad Energy.
Energy prices climbed throughout the week as Iran launched a series of retaliatory attacks, including a drone strike on the U.S. Embassy in Saudi Arabia, and the conflict widened. Iran also hit a major refinery in Saudi Arabia and a liquefied natural gas (LNG) facility in Qatar, halting flows of refined products and taking about 20% of the world’s LNG supply offline.
“We keep seeing news of vessels being hit or refineries or pipelines, so the list is very long,” Galimberti said. As a result, roughly 9 million barrels of oil per day are off the market because of facilities being hit or producers taking precautionary measures, he said. “Right now, with all of this shut in, we are in a situation of extreme deficit.”
The U.S. is a net exporter of oil, but that does not mean it is immune to increases in the price of oil or gasoline, or that its producers can just make up the difference.
Oil is traded on global markets, so even the oil produced in the U.S. has risen in price based on what’s happening in the Middle East. And for many American oil producers, “if you put more wells in the ground, there’s about a six-month lag before you get that production uplift,” Salazar said.
In addition, the U.S. can’t simply turn all of its crude oil into gasoline. That’s because most of the oil produced in the U.S. is light, sweet crude, and refineries on the East and West coasts are primarily designed to process heavier, sour crude. As a result, the U.S. exports some of its crude oil and imports some refined products such as gasoline.
Jerry Dalpiaz of Covington, Louisiana, said he started filling up his cars and gas cans on “the day that they announced that the United States has started military operations against Iran” because he assumed gas prices would climb.
“I can weather the storm because I’m in good financial position, but I feel sorry for my fellow citizens who are living paycheck to paycheck because they have to drive to get to work and they have to change their oil and all those things,” Dalpiaz said. “And they need some relief and it doesn’t seem to be coming anytime soon.”
Trump issued a plan Friday to insure losses up to approximately $20 billion in the Gulf region, aiming to restore confidence in maritime trade, help stabilize international commerce and support American and allied businesses operating in the Middle East.
But some energy experts said extra insurance won’t solve the problem.
“The problem is that in the oil trading, oil shipping world, people are worried about counterterrorism,” said Amy Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University, adding that they’re worried about automated drone speedboats, weapon-carrying, flying drones and mines or other devices. “In order for the United States to create the atmosphere that undoes the current bottleneck at the Strait of Hormuz, there has to be some credible demonstration of solutions to the counter-terrorism problem.”
Salazar wondered what the “new normal” would look like if the Strait of Hormuz was effectively re-opened, and what effective security would look like.
“All it takes is one individual with a RPG (rocket-propelled grenade) to stand on the shore and take out a tanker, right?” Salazar said. “And this is forever, do you know what I mean?”
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Associated Press journalists Amanda Swinhart in Middlebury, Vermont, Stephen Smith in Covington, Louisiana, Josef Federman in Jerusalem and Stan Choe and Wyatte Grantham-Philips in New York contributed to this report.
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