Oil prices rose on March 3 as the U.S.-Israel-Iran war escalated, sending prices for some items that American consumers depend on soaring.
Brent crude, the world benchmark and the index most affected by the Middle East conflict, soared 9% on Tuesday morning to trade around $85 a barrel, its highest in about 18 months and up about 25% in just a few days.
All eyes are on the Strait of Hormuz, through which about 20% of the world’s oil supplies flow and which is effectively blocked by Iranian forces.
Rachel Ziemba, an independent energy analyst and nonresident senior fellow at the Center for a New American Security, said prices have been rising since the strike began, but the intensity of Monday and Tuesday’s escalation may have spooked the market.
“If anything, the transportation disruptions that are starting to occur are greater than the market expected,” Ziemba told USA TODAY. Traders are watching to see how the United States responds on Tuesday to move the strait from a “frozen and implicit blockade” to a more open state, he said.
“If it’s not successful, I think the price could go upwards of $90,” she said.
How does the oil supply chain impact consumers?
The strait is important to global energy markets, with more than 20% of oil supplies flowing through it, oil analyst Patrick de Haan said in a report Tuesday morning.
“If the risk increases near that corridor, the market will immediately price in the possibility of curtailed flows,” he said. “Only risk can act like a supply constraint.”
As previously reported, oil from Venezuela, which is currently under the effective control of the United States, cannot replace lost Middle East output.
Pump pain and home heating
After three days of conflict, consumer products that rely on oil are starting to feel the pinch.
As of mid-morning Eastern time, the national average gas price was $3.089 per gallon, according to GasBuddy.
And March 2 marked the biggest single-day price increase since March 4, 2022, at the beginning of Russia’s invasion of Ukraine, De Haan said.
Ziemba said the cost of household heating oil would also rise as many households spent more on heating than usual after a cold and snowy winter.
Meanwhile, “spring is approaching,” Ziemba said, which means demand for kerosene is decreasing. But on the other hand, de Haan said Americans will be driving more as the warmer months continue.
Meanwhile, concerns about energy infrastructure persist across the Strait of Hormuz, Ziemba said. Did producers who shut down their equipment as a precaution have been able to protect everything? “The question is not just how long they’re stuck at home, but how quickly they can get back online,” Ziemba said.
Goldman Sachs analysts wrote in a March 2 analysis that higher energy prices, in addition to certain products consumed by households, are also pushing up inflation measures, even as they weigh on economic growth.
Although it is too early to say that the U.S. economy will suffer significant “stagflation,” a combination of low growth and high prices, the current scenario could complicate matters for the Federal Reserve’s decisions on whether to raise or lower interest rates.
