The attacks on Iran are already driving up gasoline prices, and even steeper increases are probably coming soon.
The U.S. price of a gallon of regular gas on Monday was just $3 less than it was at the nation’s gas stations on Sunday, according to a survey by AAA. That’s up nearly 2 cents a gallon from the previous day’s survey and six cents more than a week ago.
According to AAA, gas last averaged above $3 a gallon in early December.
But world oil markets posted their biggest one-day gain in years on Monday. It won’t be long before prices at the pumps equalize.
Independent oil analyst Tom Kloza, a consultant for Gulf Oil, said he expects retail gas prices to rise 5 to 10 cents a day at least for some time. Wholesale gasoline prices closed nearly 4% higher on global markets on Monday. Diesel futures rose nearly 12%.
“Yesterday, I got a call early in the morning and several companies were raising wholesale gasoline prices by 25 cents (a gallon),” Kloza told CNN on Sunday. “Clearly, there’s clearly a sense of panic out there. (Wholesalers) are afraid that huge price increases will hit them.”
Gasoline prices typically begin to climb at this time of year due to increased seasonal demand, and the highest point of gas prices in recent years has come in mid-April. But the war with Iran has accelerated those normal increases and the impact on prices at the pump will be clearly visible in a matter of days.
Kloza said it was too early to tell how much gas prices would rise.
He said, “Where will we stop? Before Friday night, I would have said we would stop at $3.25.” “It’s a little more open now.”
West Texas Intermediate, the benchmark used for U.S. oil, closed up 6.3%, about half its earlier gain, but still its biggest one-day rise since the first trading day after the U.S. attack on Iran’s nuclear facilities in June.
The 2022 disruption in global markets pushed the average price of gasoline in the United States to a record $5.02 in June of that year, up from $3.53 per gallon just before the invasion.
Kloza doesn’t think gas prices will approach that record even if the war in Iran drags on. He believes there is enough supply worldwide to prevent this from happening.
“There’s a lot of crude out there,” he said.
A key factor in the direction of oil prices will be the flow of traffic through the Strait of Hormuz – the narrow channel off Iran’s southern coast through which 20% of global oil supplies flow.
Traffic through the strait is currently halted.
Oil prices could rise further if traffic in the Strait of Hormuz remains effectively halted for a prolonged period. Iran has already fired on some ships in the strait.
Iran would not need to attack enough ships to actually make the strait impassable: For example, Danish shipping company Maersk said on Sunday it was suspending all ship crossings in the waterway. And maritime insurer Skuld informed customers on Sunday that it would end policies that provide coverage against war risks in the region. This can cause shipping rates to skyrocket.
“I don’t think Iran can close the Strait of Hormuz, but insurance companies and ship operators can,” Kloza said.
Kloza said another concern would be if Iran began targeting the oil infrastructure of other Persian Gulf countries.
This may have already begun to happen: A fire broke out at the Ras Tanura oil refinery in Saudi Arabia on Monday, caused by shrapnel from the interception of two Iranian drones. The Saudi Energy Ministry said the fire was limited and brought under control, but Reuters reported that production at the refinery had been suspended as a precaution.
“You can do significant damage to oil infrastructure with drones, let alone missile capability,” Kloza said.
Qatar’s state energy company QatarEnergy has halted production of liquefied natural gas, or LNG, following the Iranian attack on its facility in Ras Laffan on Monday, the company said in a statement to CNN. A major oil refinery in Kuwait was also hit by falling shrapnel early Monday, according to the state-run Kuwait News Agency.
The price of Dutch natural gas, the European benchmark, rose more than 43% in Monday afternoon trading. Europe and Asia are among the largest buyers of LNG from Qatar, one of the world’s largest exporters of the fuel. But due to excess supply of LNG in Europe, prices will likely not reach the peak heights of 2022, when Europe faced an energy crisis caused by Russia’s full-scale invasion of Ukraine, said Per Magnus Nysveen, a senior analyst at consultancy Rystad Energy.
The United States and most of Europe have sanctioned Iranian crude for years. China has become Iran’s biggest customer by now. But oil is traded on a global market and if China was forced to buy oil from elsewhere, it would send oil and gasoline prices higher around the world.
Rising diesel prices could have a knock-on effect on American consumers, even though fewer people drive diesel-powered cars. Trucking companies may begin adding fuel surcharges to their rates.
“It’s bad for truckers, railroads and the consumer who depend on these industries to deliver consumer goods,” said oil analyst Andrew Lippo. “This is really bad for farmers, because the spring planting season is about to start.”
It will also hurt households, primarily in the Northeast, that heat their homes with heating oil, which is essentially the same product as diesel fuel.
Rising energy prices could hurt the political prospects for President Donald Trump and Republicans ahead of the midterm elections. Affordability remains voters’ top concern, and higher gas prices could raise the cost of living for millions of Americans.
Trump knows this: He was bragging about cheap gas prices during his State of the Union address just a week ago.
<a href=