NEW YORK (AP) — Oil prices rose a week after the United States and Israel launched major strikes on Iran that escalated the conflict in the Middle East and showed no signs of stopping their rapid climb.
The conflict, in which nearly every country in the Middle East has been hit by missile or drone strikes, has left ships carrying about 20 million barrels of oil a day stranded in the Persian Gulf unable to safely pass through the Strait of Hormuz, a narrow mouth of the Gulf that borders Iran.
Transmission disruptions and damage to key Middle East oil and gas facilities have disrupted supplies to some of the world’s largest oil producers. Kuwait, for example, said on Saturday it would cut oil production as a “precautionary” measure due to the conflict, which could further shock global energy markets.
Oil prices rose above $90 a barrel on Friday, with U.S. crude hitting $90.90, up 36% from a week ago, and Brent, the international benchmark, up 27% on the week to $92.69.
The result is that consumers and businesses will have to pay more for gasoline, diesel and jet fuel, and some drivers are already feeling it at the pump.
“It’s crazy. There’s no need for it, especially at a time when people are already struggling, but it’s not unexpected from all this turmoil,” said Mark Doran, who was pumping gas in Middlebury, Vermont, on Friday. “I don’t think any Middle East conflict that we’ve started is over, so the fact that they’re saying it’s over is unbelievable, and the Middle East, you know, is a place that America is not going to solve.”
President Donald Trump said on Monday that the United States expects military operations against Iran to last four to five weeks, but it has the potential to last longer. On Friday, Trump appeared to rule out talks with Iran without “unconditional surrender.”
“The more news we get, the more it looks like it’s going to last a really long time,” said Al Salazar, director of macro oil and gas research at Inverse.
In the United States, the price of a gallon of regular gasoline rose to $3.41 on Saturday, according to the AAA Motor Club, about 43 cents more than a week ago. Diesel sold for $4.51 a gallon on Saturday, about 75 cents higher than last week.
Price shocks were felt even more strongly in Europe and Asia, markets that rely heavily on energy supplies from the Middle East. Diesel prices have doubled in Europe, and jet fuel prices have risen nearly 200% in Asia, according to Claudio Galimberti, chief economist at Rystad Energy.
Energy prices rose during the week as Iran launched a series of retaliatory attacks, including a drone attack on the US embassy in Saudi Arabia, and the conflict widened. Iran also targeted a major refinery in Saudi Arabia and a liquefied natural gas (LNG) facility in Qatar, halting the flow of refined products and knocking about 20% of the world’s LNG supply online.
“We see news of ships colliding or refineries or pipelines, so the list is long,” Galimberti said. As a result, about 9 million barrels of oil per day are off the market because facilities are damaged or producers are taking precautionary measures, he said. “Right now, with all of these closings, we’re in a severe deficit.”
The United States is a net exporter of oil, but that doesn’t mean it’s immune to higher oil or gasoline prices, or that its producers can only vary.
Oil is traded on international markets, so even oil produced in the United States has gone up in price based on what’s happening in the Middle East. And for most U.S. oil producers, “if you put more wells in the ground, there’s about a six-month lag before you can ramp up that production,” Salazar said.
Furthermore, the United States cannot simply convert all of its crude oil into gas. 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, sweeter crudes. As a result, the United States exports some of its crude oil and imports some refined products such as natural gas.
Jerry Dalpias of Covington, Louisiana, said he started filling up his car and gas cans “the day they announced that the United States was going to launch military operations against Iran” because he thought gas prices would go up.
“I can weather the storm because I’m in good financial shape, 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 gas and all that stuff,” Dalpiaz said. “And they need some relief and it doesn’t seem like it’s going to come soon.”
Trump on Friday released a plan to insure nearly $20 billion in losses in the Gulf region, aimed at restoring confidence in maritime trade, helping to stabilize global trade and supporting US and allied businesses in the Middle East.
But some energy experts say additional insurance won’t solve the problem.
“The problem is that in the oil business, in the oil shipping world, people are worried about fighting terrorism.” Amy Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University, said they are concerned about autonomous drones, speedboats, weapons transfers, flying drones and mines or other devices. “In order for the United States to create an atmosphere in which the current standoff in the Strait of Hormuz can be removed, there must be some credible demonstration of a solution to the problem of combating terrorism.”
Salazar wondered what the “new normal” would look like if the Strait of Hormuz was effectively reopened, and what effective security would look like.
“All it takes is one person to stand on the beach with an RPG (rocket-propelled grenade) and take out a tanker, right?” Salar said. “And it’s forever, you know what I mean?”
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Associated Press reporters Amanda Swinhart in Middlebury, Vermont, Stephen Smith in Covington, Louisiana, Joseph Federman in Jerusalem and Stan Chu and Wyatt Grantham-Phillips in New York contributed to this report.
