Oil prices have surged past US$100 per barrel for the first time in more than three and a half years, as the ongoing conflict in Iran disrupts production and shipping in the Middle East. On the Chicago Mercantile Exchange, Brent crude, the international benchmark, reached $107.97 per barrel, marking a 16.5% increase from its Friday closing price of $92.69. Meanwhile, West Texas Intermediate, the light, sweet crude from the United States, was trading at approximately $106.22 per barrel, up 16.9% from its previous close of $90.90.
This escalation follows significant gains last week, when U.S. crude prices jumped 36% and Brent crude rose 28%. The conflict, now entering its second week, has affected key regions involved in oil and gas production and transportation from the Persian Gulf. According to Rystad Energy, approximately 15 million barrels of crude oil, or 20% of the world’s supply, are typically transported daily through the Strait of Hormuz. However, the threat of Iranian missile and drone attacks has severely restricted tanker movement through this critical passage, which is bordered by Iran and carries oil and gas from countries like Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates, and Iran.
As storage tanks reach capacity due to reduced export capabilities, Iraq, Kuwait, and the UAE have reduced their oil production. Additionally, attacks on oil and gas facilities by Iran, Israel, and the United States since the conflict began have further aggravated supply issues. The last instance of U.S. crude futures trading above $100 per barrel was on June 30, 2022, when prices reached $105.76. For Brent crude, the last occurrence was on July 29, 2022, at $104 per barrel.
The spike in oil prices since the attacks by Israel and the U.S. on Iran on March 1 has unsettled financial markets, raising concerns that increased energy costs could drive inflation and reduce consumer spending in the U.S., a critical component of the economy. In the U.S., the average price for a gallon of regular gasoline rose to $3.45 on Sunday, marking an increase of 47 cents from the previous week, according to AAA. Diesel prices increased by about 83 cents over the same period, reaching approximately $4.60 per gallon.
U.S. Energy Secretary Chris Wright, in an appearance on CNN’s “State of the Union,” expressed optimism that U.S. gas prices would fall below $3 per gallon soon. “Look, you never know exactly the time frame of this, but, in the worst case, this is a weeks, this is not a months thing,” Wright stated.
If oil prices continue to exceed $100 per barrel, some analysts and investors caution that it could strain the global economy. Iranian officials reported that Israeli strikes on oil depots in Tehran and a petroleum transfer terminal early Sunday resulted in four fatalities. Israel’s military claimed that these depots were utilized by Iran’s military to fuel missile launches. Mohammad Bagher Qalibaf, Iran’s parliament speaker, warned of the escalating impact of the conflict on the oil industry.
Iran exports around 1.6 million barrels of oil daily, primarily to China, which might need to seek alternative sources if Iranian exports are disrupted, potentially driving up energy prices further. The price of natural gas has also risen during the conflict, albeit to a lesser extent than oil. Late Sunday, natural gas was priced at approximately $3.33 per 1,000 cubic feet, a 4.6% increase from its Friday closing price of $3.19, following an 11% rise the previous week.
U.S. stock index futures, a market indicator, declined late Sunday, suggesting that Wall Street’s main indexes might open lower on Monday. The S&P 500 futures fell by 1.6%, the Dow’s futures decreased by 1.8%, and the Nasdaq composite futures dropped by 1.5%. On Friday, the S&P 500 declined by 1.3%, the Dow fell by as much as 945 points before closing down roughly 450 points, and the Nasdaq decreased by 1.6%.
