American drivers already reeling from gas prices above $4 a gallon should brace for worse, energy analysts warn, as oil markets confront the mounting toll of the Iran war and the fading hope of a quick resolution.
Oil has climbed past $100 a barrel in recent days as fighting between the U.S. and Iran intensified following the collapse of diplomatic efforts to extend an April ceasefire, reported the Washington Post. Tehran has struck U.S. military sites and energy infrastructure across Saudi Arabia, Qatar and the UAE, while Iran-aligned Houthi militants have blockaded Saudi-bound shipping in the Red Sea, tightening the squeeze on global oil and gas exports.
Bob McNally, founder of Rapidan Energy Group and a former energy adviser in the George W. Bush administration, said this has been one of the biggest cases of energy market mispricing in modern times, saying that markets are only now catching up to the war's real toll, and that the latest violence could push prices substantially higher.
Shon Hiatt, an energy scholar at the University of Southern California Marshall School of Business, said oil markets appeared to have assumed that political pressure would force President Donald Trump to wind down the conflict he launched on Feb. 28.
“Everyone had been making this bet that Trump would chicken out when things got bad, pull out and the war would end,” Hiatt said. “But that hasn’t happened. It is not clear when this will end.”
The cushions that softened the war's early impact have largely disappeared. Global inventories were healthy when fighting broke out in late February, and China initially eased pressure on markets by drawing down its own reserves while the U.S. and allies released hundreds of millions of barrels of crude.
Those stockpiles are now depleted and need replenishing — just as Chinese demand rebounds and summer driving season ramps up fuel consumption in the U.S. and Europe.
Compounding the squeeze, Ukrainian drone strikes have knocked out Russian refineries critical to global diesel supply, sending diesel prices to $5.20 a gallon nationally as of Thursday, according to AAA. A new congressional report found American farmers spent $1.4 billion more on diesel this planting season than last year.
Energy scholar Ben Cahill of the University of Texas at Austin said the shock absorbers that carried markets through the war's first months have worn thin, making price spikes harder to avoid as new disruptions strike daily.
Some forecasters, including Capital Economics, warn that a prolonged closure of the Strait of Hormuz could push oil prices more than 20 percent higher in the months ahead — a scenario the firm summarized bluntly in a note to clients: “China can’t bail out the global oil market forever.”