Why US gas prices are rising after the Israel-Iran conflict

The developments show how vital the Gulf region is to global energy supplies and how interconnected global energy markets are, even if the United States produces a lot of oil.

Here’s what you need to know.

Who sets gas prices and how are they determined?

In November, the cost of crude oil accounted for about 50% of the price of a gallon of regular gasoline, according to the Energy Information Administration’s most recent estimate.

Refining and distribution by large energy companies and taxes account for most of the rest, which is why prices vary by region. Station owners have a little leeway in setting the price they charge, typically just a few cents per gallon.

Why is a disruption in the Middle East affecting American drivers?

The price of oil, regardless of its source, depends largely on global supply and demand. Prices can change rapidly when supply is cut off by wars or weather conditions, or if demand increases or decreases.

The price U.S. refiners pay is supported by benchmarks set in commodity markets. The two main ones are Brent and West Texas Intermediate, but there are many different oil prices around the world, determined by where it is produced and how far into the future it is expected to be delivered.

By any measure, oil prices have skyrocketed: West Texas Intermediate futures are 30% higher than before the attacks began.

“When there is a supply disruption in the Middle East, that increases the prices of every barrel of oil in the world,” said Christopher Knittel, associate dean for climate and sustainability at the Massachusetts Institute of Technology. “These price increases then reach products that use oil, gasoline being the most relevant.”

But isn’t the United States the largest oil producer in the world?

Yes, but American refineries cannot easily use all the oil produced in the United States. The United States is a net exporter of petroleum products, including gasoline, diesel, jet fuel and propane, but still imports millions of barrels of crude oil.

In December, the United States imported about 200 million barrels of crude oil, according to the Energy Information Administration. That same month, it exported more than 350 million barrels of petroleum products, including 128 million barrels of crude oil.

Fuel made from imported oil often ends up at American gas stations. The type of oil produced in the United States tends to be of higher quality, so-called sweet oil, but domestic refineries are created to handle heavy, sour oil. It is often more profitable to sell the sweet and buy the heavy.

It would be expensive and difficult to reconfigure the refineries, said Willy Shih, an international trade expert at Harvard Business School.

Additionally, a federal law called the Jones Act requires that goods shipped between U.S. ports be transported on vessels operated and manufactured in the United States, which can sometimes make it more efficient for refiners to import oil than to transport it within the country.

Refineries in New Jersey, for example, could import oil from Algeria or Nigeria instead of buying it from Texas.

“You say, ‘Well, how can that make sense?’” Shih said. “Because that was the most efficient way to transport it.”

Can the government lower prices?

Energy experts generally say that presidents have little control over oil prices, but the United States does have the Strategic Petroleum Reserve, which can hold up to 714 million barrels of crude. In 2022, as gas prices soared after Russia’s invasion of Ukraine, President Joe Biden released millions of barrels from reserves to help lower prices.

But any effect from such sales will likely be temporary. Another option, drilling more, takes time.

“Let’s just say you wanted to open up some environmentally fragile areas for oil drilling to respond to this oil crisis,” Knittel said. “Those barrels of oil won’t be available for another six months.”

What has the Trump administration said?

On Monday, senior officials from the United States and six other industrialized countries, known as the Group of 7, signaled they were not yet worried about running out of fuel.

President Donald Trump has also rattled markets with mixed messages about the war. He said in a phone interview Monday with a CBS News reporter that the war “is practically very complete.”

A few hours later he warned of even more aggressive action if Iranian leaders attempted to cut off global energy supplies.

This article originally appeared in The New York Times.