Iran’s escalating conflict has halted oil production and shipping in the Middle East and disrupted energy supplies around the world.
Those tensions sent oil higher on Monday, only for it to fall back sharply after President Donald Trump suggested the war could be nearing an end.
The price of Brent crude, the international benchmark, briefly rose to $119.50 a barrel on Monday – the highest level since the summer when Russia invaded Ukraine in 2022. West Texas Intermediate, which is produced in the United States, also rose to $119.48 per barrel at the same time. But those prices fell to $90 late on Monday, as markets rallied sharply after Trump told CBS News he thought “the war is pretty much over.”
Still, that’s well above the $70 a barrel crude oil hit on Feb. 28 before the U.S. and Israel launched a war against Iran.
The conflict, now in its second week, has hit countries and infrastructure critical to the production and transportation of oil and gas worldwide. And on Monday, Iran named Ayatollah Mojtaba Khamenei as Supreme Leader to succeed his late father – a fresh sign of defiance of the country’s leaders as the US and Israel continue heavy bombing.
Fears of attacks have halted tanker traffic in the Strait of Hormuz, a narrow waterway off Iran’s coast through which a fifth of the world’s oil passes each day. Major oil producers in the region, such as Iraq, Kuwait and the United Arab Emirates, have cut production due to export restrictions as they run out of storage space. Iran, Israel and the US have all targeted oil and gas facilities since the start of the conflict, exacerbating supply concerns.
“In economic terms, this is already the biggest shock to oil supplies,” said Nicholas Mulder, an assistant professor of history at Cornell University who studies the economic effects of conflict. As Gulf producers cut output and shut down production, he explained, “we’re losing about three to four times more barrels of oil than we did during the 1973 and 1979 oil crises.”
Casualties of the war on civilian targets and in the energy sector increased over the weekend, especially after Sunday’s attacks by Israel on an oil depot in Tehran. Meanwhile, across the Persian Gulf, Bahrain accused Iran of targeting a desalination plant vital to its drinking water supply. Bahrain’s National Oil Company has announced drastic measures to curb its shipments after an Iranian attack burned down an oil refinery complex. A statutory declaration releases the company from contractual obligations due to extraordinary circumstances.
And the war has disrupted critical supply chains. About 15 million barrels of crude oil — about 20% of the world’s oil — are typically shipped through the Strait of Hormuz each day, according to independent research firm Rystad Energy. The threat of Iran’s missile and drone attacks has prevented the passage of oil and gas tankers from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran.
Some energy experts warn of the ripple effects.
Jim Burkhardt, vice president and global head of crude oil research at S&P Global Energy, pointed specifically to production cuts and storage constraints — noting that the crisis has gone beyond just the transportation issue, and that restoring output will be “a massive technical exercise that could take weeks or more.”
And even higher oil prices may come in the near future. If the Strait of Hormuz, in particular, remains blocked for just a few weeks, oil and gas strategists at Macquarie Research say oil prices could rise to $150 or more per barrel. It will reach a previous high of around $147 before the 2008 financial crisis.
However, others expect the disruptions to be more temporary. Oxford economists forecast prices will fall to an average of $80 a barrel for the quarter, but noted on Monday that “the risk of a more prolonged recession has clearly increased.”
In response to rising prices, there has also been talk of dipping into emergency oil reserves in the US and elsewhere. But on Monday, the Group of Seven major industrial powers said they had decided against using their strategic reserves, at least for now.
“We’re not there yet,” French Finance Minister Roland Liscourt said after chairing a meeting of his G7 counterparts. Still, he told reporters in Brussels that the group was ready to “take the necessary and coordinated steps to stabilize markets, such as strategic stockpiling.”
On Saturday, Trump rejected the idea of drawing on US strategic petroleum reserves, saying US supplies are sufficient and prices will soon fall.
Yet increases in oil and natural gas costs continue to drive up fuel prices, rippling through a range of industries—affecting everything from jet fuel for airplanes and car gas prices to household energy bills.
Experts like Burkhardt note that Asian economies are particularly vulnerable, because of the region’s heavy reliance on imports from the Middle East.
Iran exports about 1.6 million barrels of oil a day, most of it to China, which has called for an immediate end to the conflict. If Iranian exports are disrupted, Beijing may need to look elsewhere for supplies, another factor that could push energy prices higher.
South Korean President Lee Jae-myung also warned of stiff penalties for oil refineries and gas stations caught in price gouging or manipulation, saying it would be prudent to find alternatives to supplies that must travel through the Strait of Hormuz.
Across Southeast Asia, price hikes have led to long lines outside filling stations.
But price hikes are spreading across the globe. Higher energy costs could raise overall inflation, strain household budgets and curb consumer spending, the dominant engine behind some major economies, including the U.S. Those concerns have rippled through financial markets, sending share prices down sharply since the war began.
The U.S. is now a net exporter of oil, so it would be “less vulnerable to Brent and WTI falling above $100” than Europe or Asia, FxPro market analyst Alex Koptsevich noted on Monday. Still, he stressed that past sharp increases in oil prices contributed to the US recession.
Gas prices are already high for American drivers. On Monday, the average price of a gallon of regular US gas rose to $3.48, according to the AAA Motor Club, up nearly 50 cents from a week ago. Diesel, which is widely used in shipping, sold for about $4.66 a gallon, an increase of more than 80 cents in the week.
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This story has been corrected to show that the Israeli and US attacks on Iran began on February 28, not March 1.
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Kurtenbach reported from Bangkok. Associated Press reporters John Lester in Paris and Lauren Cook in Brussels contributed.
