Tensions high as world awaits Iran response to US attacks
After the U.S. attacked Iran, major cities stepped up security as US agencies issued alerts and world leaders urged de-escalation.
Oil prices will be in the spotlight in coming days and weeks as the world awaits Iran’s response to surprise U.S. attacks over the weekend.
Just after the attacks, oil prices spiked to a five-month high on escalating Middle East tensions that some feared would break out into an all-out war and possible closure of the Strait of Hormuz, a key waterway for transporting oil around the world.
Prices have since backed down as analysts predicted closing the Strait of Hormuz, while possible, is not probable.
“As it stands, it is arguably not in Iran’s best interests to close the Strait,” said David Oxley, chief climate and commodities economist at Capital Economics.
“However, this could change if the conflict were to escalate and affect Iran’s own ability to export oil,” he added.
Why is the Strait of Hormuz important?
The Strait of Hormuz is a vital artery for global energy flows, accounting for about 25% of global seaborne oil shipments and about 20% of liquified natural gas (LNG) flows.
It connects the Persian Gulf to the Gulf of Oman and the Arabian Sea, making it vital for exporting oil from major producers like Saudi Arabia, Iraq, Iran, Qatar, and the UAE.
If Iran closes this waterway, the global oil supply would be disrupted and send oil prices higher, analysts said. If oil prices surge, the price of almost everything will go up.
How would high oil prices affect consumers?
Because the price of oil makes up about half the price of a gallon of gas, one of the first things to be affected by rising oil prices would be prices at the pump. But even consumers who don’t drive or use public transportation will eventually feel the squeeze of more expensive oil one way or another because oil affects the cost of producing things and transporting them to your local store.
Every $10 rise in oil prices bumps up headline inflation by roughly 0.4 percentage points and cuts economic growth by roughly 0.1 percentage point, Douglas Porter, chief economist at BMO Capital, estimated.
Already, the war has rocked global energy markets, said Natasha Kaneva, head of global commodities research at JP Morgan.
U.S. oiI prices have surged to about $75 from $60 at the end of May, marking the highest level since July of last year and representing a 23% jump. “Typically, such a surge in crude prices is eventually felt at the pump, and national average gasoline prices have already risen by over 2%,” she said.
High inflation and slower economic growth could also tank the stock market, analysts warn.
Is there an alternative route to the Strait of Hormuz?
There are alternative routes, including the Red Sea, but there’s only limited pipeline capacity available, Oxley said.
“And given that most oil flows originating from Iraq, Kuwait, and Iran itself can’t be diverted, we estimate that no more than 30% of existing oil flows could be redirected,” he said. “Meanwhile, LNG flows from the region cannot be diverted. The lack of an alternative for rerouting LNG flows has contributed to the sharp rise in natural gas prices since the start of the conflict.”
Does the U.S. get oil from Iran?
The U.S. gets very little to almost no oil from Iran, according to the U.S. Energy Information Administration (EIA). In some recent years, the U.S. imported zero barrels per day from Iran. In 2023, the latest data, the U.S. imported just 5,000 barrels per day, EIA said.
Who gets the most oil from Iran?
China is by far the largest buyer of Iranian oil. Based on tanker tracking data, China took nearly 90% of Iran’s crude oil and condensate exports in 2023, up from 25% in 2017, the EIA said. Condensates are processed hydrocarbon liquids from natural gas production primarily used to make fuels like gasoline or to make transporting heavy crude easier.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
