FRANKFURT, Germany (AP) — Energy prices rose sharply Monday as disruptions to tanker traffic through the Strait of Hormuz and damage to production facilities raised uncertainty about how the U.S. and Israeli strikes on Iran would affect supplies to the global economy.
The biggest shock was to natural gas prices, which rose more than 40% in Europe after Qatar Energy, a major supplier, halted production of liquefied natural gas after its facilities were attacked.
“Infrastructure across the region is at risk, and not just from intentional attacks, but from accidental attacks as well,” said Kevin Buck, managing director of Clearview Energy Partners. “Shrapnel and debris from missile strikes can fall on facilities and disable them as well, and so there are a number of challenges that come with generating energy in an area because of this type of conflict.”
U.S. crude rose 6.3 percent to $71.23 a barrel, while international benchmark Brent rose 6.7 percent to $77.74 a barrel.
Higher oil prices raise the prospect of more expensive gasoline for U.S. drivers, as well as higher prices for other goods, at a time when people in many countries are being hit by inflation.
An important focus was the Strait of Hormuz at the southern end of the Persian Gulf, through which 20% of the world’s oil flows. Tanker traffic dropped sharply because satellite navigation systems were disrupted, data and analytics firm Kpler said in X. The UK’s Merchant Marine Operations Center reported attacks on several ships in the area on both sides of the strait and warned of electronic interference with systems that show where ships are.
An unmanned aerial vehicle targeted a Marshall Islands-flagged oil tanker in the Gulf of Oman, killing a naval officer, Oman said.
Iran has threatened and is believed to have carried out several attacks on ships near the Strait of Hormuz.
This results in a “de facto closure” of the strait, defined by the risk tolerance of boatmen and sea captains, and traffic slows down sharply, the book said. “However the reality is that insurance companies are raising prices or in some cases canceling policies and sea captains have risk concerns. So do ship owners and shippers,” he added.
Saudi Arabia has prevented Iranian drones from attacking the Ras Tanura oil refinery near Dammam, shutting it down as a precaution, Saudi state television reported. Market attention is focused on whether the conflict will spread to other oil-producing countries in the region.
Crude oil prices are the single biggest factor in how much U.S. drivers pay for gas — a highly politicized issue ahead of midterm congressional elections. And higher oil prices are usually felt at the pump within weeks.
Gas prices are already rising before the summer driving season as people travel more. The national average for a gallon (3.7 liters) of regular rose by 6 cents to $2.99 on Monday, according to motoring club AAA.
Oil price increases are reflected significantly in pump prices over 20 days, and a $10-per-barrel increase typically results in about a 25-cent increase per gallon, according to a 2019 study by the Federal Reserve Bank of Dallas.
Crude oil prices have little impact in Europe, where taxes make up most of the price of oil, but higher energy costs can affect prices across the economy. A sustained increase of $15 per barrel could add 0.5 percentage points to consumer prices in Europe, according to Holger Schmiding, chief economist at Berenberg Bank.
There are pipelines that cross the strait, but they don’t have the capacity to move all the oil that flows through the water. Saudi Arabia, Iraq and the United Arab Emirates all rely on tankers to transport their oil to international markets.
Analysts say that closing the strait completely would also hurt Iran, as a total of 1.6 million barrels pass through the strait every day. Much of that goes to China, where refiners are less concerned about U.S. sanctions that prevent sales of Iranian oil.
“Iran basically has two ways to close the strait. One is harassing or attacking ships and the other is laying mines,” Kitab said. “And without a navy, both of those things would be difficult. So if the president succeeds in ‘destroying’ Iran’s navy, in his scenario, the chances of a long-term shutdown should decrease, and that should increase the likelihood that ships will start sailing again.”
The strait is also a key route for liquefied natural gas. European futures for April delivery rose to 45.46 euros ($53.26) on the ICE Commodity Exchange after Qatar Energy said it would halt production of liquefied natural gas. The state-owned company blames the war for this decision.
Qatar is a major gas supplier to Europe, which relies on shipments of liquefied natural gas, or LNG, to replace Russian pipeline gas supplies lost to the Ukraine invasion.
Monday’s price increase was in the range of $5-$10 per barrel expected by analysts based solely on the fear factor of the outbreak of war. And some war concerns were already reflected in prices before the war began.
However, a long-term disruption of shipping in the Strait of Hormuz could further increase prices, and thus could damage oil infrastructure in other Gulf countries. At the same time, a short conflict in which the barriers are easily reversible means that the current price increase will not continue.
On Monday, US President Donald Trump said the US expects its military operation against Iran to last four to five weeks but “has the potential to go much longer.”
“The key question for the global economy is clear: Will the Strait of Hormuz be effectively closed to oil and gas exports for several weeks?” Schmiding said. “If so, it will hurt global growth and raise global inflation significantly. But I expect Trump to avoid a sustained increase in energy prices that could hurt at home ahead of the US midterm elections in November.”
He predicted that oil prices would return to $65-$70 per barrel after near-term highs.
Iran’s attack on the Ras Tanura refinery represents a major escape, a Middle East analyst said, as Iran reveals it has control over key Gulf energy infrastructure, and investor sentiment will be battered.
Torbjorn Soltodt, principal Middle East analyst at risk intelligence firm Verisk Maplecroft, said Iran’s goal is to raise the economic costs of the conflict for Gulf states such as Saudi Arabia and the United Arab Emirates, hoping those countries will pressure the US and Israel to reduce tensions.
He said that the coming days and weeks will be marked by instability and volatility in international markets, with oil prices rising to $80 per barrel.
“If we see additional direct attacks on energy infrastructure, not only in Saudi Arabia and Kuwait, but in other countries in the region, then that’s when the market will start thinking about a push to $90 and maybe even beyond.”
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Associated Press writers Suzanne Fraser in Ankara, Turkey, and Jon Gambrel in Dubai, United Arab Emirates, contributed to this report. Busowitz reported from New York.
