Global crude oil prices briefly jumped more than 9% late Monday and stock markets dipped as the war with Iran entered its third day. Brent crude, the international benchmark, traded in the high $70s Monday morning after tanker traffic through the Strait of Hormuz effectively halted.
That marks a sharp rise from levels before the U.S. and Israel struck Iran, but it falls well short of worst-case scenarios. “The crude market is extremely measured,” said Rebecca Babin, an energy trader at CIBC Private Wealth. “I don’t see panic out there.”
Analysts warn prices could top $100 a barrel if oil flows are disrupted for a prolonged period or if the conflict spreads to neighboring states and damages oil infrastructure. Saudi officials say they downed drones aimed at an oil refinery, and Qatar Energy reports two natural gas facilities were attacked.
Markets initially sold off but pared losses as investors adopted a wait-and-see stance. The Dow Jones Industrial Average plunged as much as 600 points Monday morning before closing down just over 70 points; the S&P finished roughly flat.
Gasoline, LNG and short-term effects
When oil trading reopened Sunday night after markets were closed over the weekend, prices briefly exceeded $80 a barrel before easing. Patrick de Haan of GasBuddy estimates the crude spike will lift U.S. gasoline prices by 10–30 cents a gallon on average in the coming days, with some stations seeing increases as high as 85 cents.
About 20% of global oil consumption transits the Strait of Hormuz. Four vessels have been struck in Gulf waters since the fighting began, and concerns among shipping companies and insurers over vessel safety have effectively halted tanker transits. The strait is also a major route for liquefied natural gas (LNG) shipments; European natural gas markets have surged more than 20%, while U.S. spot natural gas prices have remained within their recent range.
The U.S., after investments in export terminals, is the world’s largest LNG exporter. Higher global prices help exporters but can contribute to rising electricity and heating costs for American consumers.
Why prices haven’t risen more
Although Iran has threatened to close the Strait of Hormuz before, an effective stoppage of flows on this scale is unprecedented. “We have not seen anything like this in pretty much the history of the Strait of Hormuz,” said Claudio Galimberti, chief economist at Rystad Energy, likening the move to blocking the aorta in a circulatory system.
Still, several factors have capped the price reaction. Markets have been oversupplied recently, allowing nations to build inventories—China in particular holds substantial oil stocks onshore and afloat—giving the world buffers against a short-term cutoff. Traders are also pricing in the possibility of a quick resolution. “Traders are seeing this through a slightly different lens, a shorter term lens,” Babin said. “We’ve had geopolitical risks that come and go very quickly.”
If the conflict endures beyond a few weeks, the picture could change markedly. “There are buffers—strategic reserves, rerouted cargoes, elevated floating inventories,” Angie Gildea, U.S. energy strategy leader at KPMG, wrote in a note to NPR, “but those are stopgaps.” The duration of the fighting is the critical variable.
OPEC+ response and stranded barrels
Over the weekend OPEC+ agreed to increase production by more than expected—normally a move that would ease prices. But with ships avoiding the Strait of Hormuz, much of that extra output may be unable to reach markets. Helima Croft, an energy analyst at RBC, cautioned that the production boost could be “an entirely moot point” because without a sea passage many regional barrels could become stranded. Iraq might even have to “shut in” production if it cannot export via the strait.
Iran has not imposed a full naval blockade; instead, selective drone and rocket strikes have been enough to convince shippers and insurers the risk of transiting the strait is too high, effectively stopping tanker traffic.
NPR’s Rafael Nam and Aya Batrawy contributed to this report.
