Energy markets could experience significant shifts in global production and distribution in the long term, experts say.
The U.S.–Israeli war with Iran has brought heightened volatility to energy and equity markets, with the price of oil rising from about $65 per barrel of crude prior to the war to a high of $119 on March 9, before falling back to its current level in the range of $100. If oil supplies from the Middle East continue to be disrupted, the effects are expected to translate into higher gasoline prices in the United States.
Energy analysts say that in the coming days and weeks, there is limited potential for producers outside the Gulf to make up for shortages fast enough to reverse price hikes. If oil prices remain elevated for an extended period, however, more production in the United States and South America could come online to fill the gap, though it will take some time.
In the longer term, energy markets could experience significant shifts in global production and distribution, as nations move to circumvent chronic instability in the Middle East. This could provide opportunities for oil and gas producers in the United States, as well as in South America, to significantly expand their role as key suppliers to global energy markets.
Short-Term Volatility, Higher Gasoline Prices
Before the war in Iran curtailed shipping from the Persian Gulf, about 20 percent of the world’s oil passed through the Strait of Hormuz, a 21-mile-wide passage that analysts call one of the most critical chokepoints on earth. While not as dominant as it once was, the Middle East remains a critical supplier of the world’s energy, with most of what passes through the Strait going to China, India, Japan, and South Korea.
As long as Iran retains the ability to disrupt Gulf shipping with its remaining arsenal of missiles, drones, and mines, energy analysts predict that markets will continue to be at the mercy of developments on the war front. Iran’s recent attacks on ships passing through the Gulf have nearly brought traffic to a halt, with about 400 tankers currently sitting idle in the Gulf, unwilling to bear the risk of attempting a passage through the Strait.
“In the near term, oil markets will likely remain dominated by risk premiums tied to shipping security and military developments in the Gulf,” Peter Earle, director of economics and economic freedom at the American Institute for Economic Research, told The Epoch Times. “If crude remains near or above the $100–$120 range, gasoline prices in the United States could rise noticeably within a few weeks as higher wholesale costs filter through to retail markets.”
For every $10 per barrel that oil rises, gasoline prices generally increase about $0.25 per gallon at the pump, Earle said, although the recent release of strategic oil reserves, coupled with alternative distribution routes and a gradual production increase from suppliers outside the Gulf, could stabilize prices “if the conflict does not escalate further.”
In the near term, however, efforts to cope with the disruption in the Gulf are only succeeding at the margin. Pipelines constructed by Saudi Arabia and the United Arab Emirates provide an alternative to passing through the Strait, but their capacity is limited.
Saudi Arabia’s East-West pipeline, which runs from the Persian Gulf to the Red Sea, could move up to 7 million barrels of oil per day, “but they have not done that for an extended period of time, so this is going to be pushing that, potentially, to a limit that it’s not built for,” Caleb Jasso, senior policy adviser at the Institute for Energy Research, told The Epoch Times.
The UAE’s Habshan–Fujairah pipeline, which circumvents the Strait and runs to the Gulf of Oman, could carry another 2 million barrels per day, but compared to the 20 million barrels that normally pass through the Strait each day, these pipelines are more “an alleviation, not a complete circumventing of total flow,” he said.
Adding to the risk of attacks in the Gulf is the fact that insurers have been canceling or raising rates on shipping insurance there. The Trump administration has pledged military escorts and insurance guarantees for oil tankers, but these initiatives are still in the works.
Other efforts to meet supply shortages include releasing oil from strategic reserves. On March 11, the International Energy Agency (IEA) announced that it would release 400 million barrels of oil from its reserves. This is more than double the amount that was released in 2022 to cope with rising energy prices after Russia invaded Ukraine, and would equate to about 20 days of normal traffic through the Persian Gulf.
The IEA was created in 1974 in an attempt to stabilize markets in response to the Arab oil embargo. Its membership includes the United States, Canada, Mexico, Japan, South Korea, Australia, and most European nations.
