What Trump’s war on Iran means for the US energy crunch

Fuel prices surged after the Trump administration launched strikes against Iran on Saturday, immediately raising questions about whether the war would increase energy costs for Americans, put more strain on the power grid, and prompt companies to pump more oil and gas into the US. If the conflict goes on longer, it could potentially play into Donald Trump’s “drill, baby, drill” plan — but it wouldn’t necessarily protect Americans from higher energy prices.

Keep in mind that it is still too early to say what type of war the US would have waged. The rise in global oil prices may be short-lived. But prolonged conflict in the Middle East and disruption in oil and gas production could reshape global flows of fossil fuels.

Longer military involvement has the potential to change forecasts for fossil fuel production in the US – already the world’s largest oil and gas producer. It also risks exacerbating a Achilles heel for the Trump administration: rising costs for Americans as the country’s energy demand grows.

“It’s an interesting balance because the high oil price environment, which encourages increased oil production, fits within the ‘drill, baby, drill’ mantra, but it also reflects an environment where energy and especially gasoline prices are more expensive,” says Reed Blakemore, director of research and programs at the Atlantic Council’s Global Energy Center.

“The balance of how the consequences of this war with Iran manifest in American energy affordability and American oil and gas production is really an important place to watch as we [move] Heading into the midterm elections in November,” Blakemore says. The rising cost of electricity, especially amid the race to build new, energy-hungry data centers, has already become a hot topic in local races across the US.

International crude oil prices rose 8 percent to about $84 a barrel by Tuesday, the highest since July 2024. Due to this, the price of gasoline in the US has increased by 10 cents to an average of $ 3.11 per gallon. The price of liquefied natural gas (LNG), a more important fuel source for electricity and heating, has increased by 45 percent in Asia and 30 percent in Europe.

Since the conflict began, all eyes have been on the Strait of Hormuz bordering Iran, the United Arab Emirates and Oman, through which a fifth of global petroleum consumption and LNG trade typically passes. That transportation halted this week as the Iranian Revolutionary Guard reportedly threatened to open fire on ships and shipping insurers changed or canceled policies. The Trump administration now says it will provide naval escort and risk insurance for ships passing through the strait.

“How much oil can keep coming out? That’s the question everyone is asking now,” says Mohit Velamala, downstream oil and chemicals expert at BloombergNEF.

Because the US already produces so much oil and gas, it is more insulated than other countries that are more dependent on fossil fuels and its neighbors, including Iran and Qatar, where Iran’s energy infrastructure has been targeted in attacks. If anything, higher oil prices could eventually encourage more oil and gas production in the US. This has been a major priority for the Trump administration as part of the president’s obsession with “American energy dominance”.

Despite efforts to boost the fossil fuel industry since President Trump returned to office, there has been little change in actual production forecasts. Before the US strikes against Iran over the weekend, BNEF had forecast US oil production increasing by only 2.5 percent between 2026 and 2030. This is largely due to the decline in prices due to the reduction in global oil supply. With war escalating in the Middle East, we may begin to see that trend reverse.

However, it is still a waiting game. The current oversupply of oil has likely blunted the impact of the conflict on markets, and if the winds of war subside and the Strait of Hormuz opens to shipping again, the price increase may be temporary. US fossil fuel companies may want to base decisions on increasing production based on more long-term structural changes rather than one-off geopolitical events. As significant as the events of this week have been, companies need to ensure that the capital required to open new wells is priced appropriately. The Trump administration reportedly does not yet see the need to drain the country’s strategic petroleum reserves.

The calculations will likely change if the conflict drags on for more than four to five weeks, which Trump said Monday was a possibility. Experts say there could be more serious conversations about increasing production at that time as the market moves toward a more supply-constrained environment. Blakemore says the increase in production “provides the United States with greater flexibility for these types of situations where it sees a national security risk that may have attendant energy security challenges.” In other words, it is a measure that might save Americans some of the pain of the costs of war.

However, in a worst-case scenario, natural gas prices could still rise – impacting Americans’ utility bills. The US is a major exporter of LNG, and Trump has sought to further increase exports of the fuel. If the US begins to compensate for the declining flows coming from Qatar – also a major LNG exporter – it could theoretically begin to cut the supply available to Americans. Electricity costs, which are already rising across the US, could increase as demand for electricity increases for the first time in more than a decade.

Of course, Blakemore says, this would be possible in “a very extreme scenario,” with a prolonged disruption in the Strait of Hormuz, which would essentially drive Qatari LNG out of the market. “I don’t see that happening right now.” But we probably won’t see a clear picture of how this conflict will unfold and what it means for energy until next week, he added.

We saw something similar happen after Russia’s invasion of Ukraine, which sent electricity and gasoline prices soaring in the US and across Europe. It has been a protracted conflict that has led to new sanctions and increased US LNG exports to the EU and UK – structural changes in the market that we are likely to see soon after the conflict with Iran escalated.

It is also argued that reducing dependence on fossil fuels will limit volatility in energy prices. “The current crisis is another example of the instability and risks associated with dependence on fossil fuels,” Lorne Stockman, research co-director of the environmental group Oil Change International, said in an email. “The US is already facing an energy affordability crisis due to rising gas prices and rising electricity demand. It could get worse if the situation in the Gulf continues.”

Blakemore says that if the conflict continues, it could reinforce the idea that a diverse energy mix, including renewables and nuclear power, would strengthen energy security. However, Trump has worked to roll back tax credits and federal funding for wind and solar projects as part of his focus on promoting fossil fuels. According to a report by Oil Change International published last year, federal subsidies for fossil fuels have reached nearly $35 billion annually.