Oil surges past $90 as war in Middle East chokes Strait of Hormuz, rattling fuel costs worldwide
Oil prices spiked and showed no signs of easing a week after the United States and Israel launched major attacks on Iran, tipping the Middle East into war and choking off one of the world’s most vital energy arteries, the Strait of Hormuz.
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Commercial tankers carrying roughly 20 million barrels of oil a day are stranded in the Persian Gulf, unable to safely pass through the narrow waterway bordered by Iran, as missile and drone strikes ripple across the region. Damage to refineries, export terminals and pipelines, along with precautionary output cuts, has tightened supplies from some of the world’s largest producers.
Kuwait on Saturday said it would reduce oil production as a precaution. Iran, in retaliatory attacks that widened the conflict, struck a major refinery in Saudi Arabia and a liquefied natural gas facility in Qatar, halting refined product flows and taking about 20% of global LNG supply offline. A drone strike also hit the U.S. Embassy in Saudi Arabia.
Oil rallied all week. U.S. benchmark crude settled Friday at $90.90 a barrel, up 36% from a week earlier. Brent, the international benchmark, jumped 27% over the week to $92.69.
- Gasoline in the U.S. averaged $3.41 a gallon Saturday, up about 43 cents in a week (AAA).
- U.S. diesel rose to $4.51 a gallon, up roughly 75 cents from last week (AAA).
- Diesel prices doubled in Europe; jet fuel prices climbed nearly 200% in Asia (Rystad Energy).
- Roughly 9 million barrels a day of oil supply is offline due to damaged facilities and precautionary shut-ins, creating an “extreme deficit,” said Claudio Galimberti, chief economist at Rystad Energy.
The price shock is already hitting consumers. “It’s crazy. It’s not needed, especially at a time when people are already struggling,” said Mark Doran, filling up Friday in Middlebury, Vermont. In Covington, Louisiana, Jerry Dalpiaz said he began topping off cars and gas cans as soon as the U.S. announced military operations, adding: “I feel sorry for my fellow citizens who are living paycheck to paycheck.”
President Donald Trump said Monday the U.S. expected its operations against Iran to last four to five weeks but has “the capability to go far longer,” and on Friday appeared to rule out talks short of Iran’s “unconditional surrender.” He also unveiled a plan to insure up to about $20 billion of losses in the Gulf region to restore confidence in maritime trade and support allied businesses.
But energy analysts cautioned that financial backstops won’t unblock shipping lanes if vessels and crews remain exposed. “In the oil trading, oil shipping world, people are worried about counterterrorism,” said Amy Jaffe, who leads the Energy, Climate Justice and Sustainability Lab at New York University, citing automated drone boats, weaponized drones and mines. “There has to be some credible demonstration of solutions to the counter-terrorism problem.”
Even as a net exporter, the U.S. is not insulated from global oil shocks. Domestic crude is priced off world markets, and production cannot rise overnight. “If you put more wells in the ground, there’s about a six-month lag before you get that production uplift,” said Al Salazar, head of macro oil and gas research at Enverus. Refining constraints also limit how much U.S. crude can be turned into gasoline at home, since many coastal refineries are configured for heavier, sour grades rather than the light, sweet oil prevalent in U.S. shale.
The larger question, analysts say, is what a “new normal” looks like even if the Strait of Hormuz is partially reopened. “All it takes is one individual with an RPG to stand on the shore and take out a tanker,” Salazar said. “And this is forever.”
By Ali Musa
Axadle Times international–Monitoring.
