Iran conflict expands, involving Lebanon, Saudi Arabia and Cyprus
The escalation of attacks has extended the conflict between Iran and both the United States and Israel to Lebanon, Saudi Arabia, and Cyprus.
Oil prices soared on March 2 following the joint U.S. and Israeli attack on Iran, but remained below the highs reached at the start of trading on Monday.
Crude oil rose 6.2% to about $71 a barrel, while global benchmark Brent crude rose 7.2% to about $78 a barrel just before noon ET.
Oil analyst Patrick de Haan said the move “makes sense,” but added: “This is a risk premium layered on top of an already tight seasonal market. It’s not a structural supply shock at this stage.”
A doomsday oil scenario is unlikely
Analysts say there are many factors mitigating the worst-case scenario for oil, but major headwinds remain.
“Right now, the market is thinking that the duration of the dispute is probably limited, up to four weeks (based on recent comments from President Donald Trump),” said Rob Howarth, senior investment strategy director at U.S. Bank Asset Management, which manages more than $500 billion in assets.
Howarth noted that prices remain well below triple-digit levels seen at the start of the Russia-Ukraine conflict in 2022. “Prolonged conflict and the impossibility of navigation in the Strait of Hormuz are the main risks that could push oil prices above $100 per barrel,” he added.
Neil Dingman, an analyst in William Blair’s energy and power technology group, said in a report published March 2 that the world’s oil producers, including OPEC+ and some U.S. companies, have announced or signaled their intention to enter the vacuum left by Iran.
Venezuela cannot bridge the gap
The United States effectively controls the oil produced in Venezuela, but that will do nothing to offset the more than 3 million barrels per day produced by Iran, de Haan wrote in an earlier commentary.
“Even in the most optimistic scenario of political stability and investment, it will take years, not weeks, for Venezuela’s production to approach levels approaching the scale of Iranian exports,” he said.
How high can oil prices rise?
But continued bombing would put pipelines and other transportation and production infrastructure at risk, Dingman wrote. Some analysts predict that in a worst-case scenario, prices could rise to more than $100 a barrel.
Still, he added, “the oil market was well-supplied before the conflict, and energy companies are likely to benefit from anticipated demand from the build-out of artificial intelligence infrastructure.”
De Haan said U.S. consumers will likely start seeing slightly higher gas prices within the next day or two. Over the next week, prices are expected to increase by 10 to 30 cents a gallon at most regular gas stations, he said. As USA TODAY previously reported, gas prices generally rise in line with oil prices.
