President Donald Trump says surging gasoline prices are a "very small price to pay" as theIran warroils global energy markets, sending crude oil prices surging above $100 a barrel for the first time since Russia's 2022 invasion of Ukraine.
The conflict has severely disrupted oil flows through theStrait of Hormuz, a key global trade route, increasing prices at theU.S. gas pumpand threatening to undercut Trump'seconomic agendaahead of the November midterms.
Read More:Gas Prices Surge in U.S. as Iran War Chokes Global Oil Supply. What You Need To Know
The President on Sunday dismissed concerns over rising crude prices as a temporary blip.
"Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace," President Donald Trumppostedon Truth Social on Sunday evening. "ONLY FOOLS WOULD THINK DIFFERENTLY!"
Energy Secretary Chris Wright also appeared eager to reassure Americans that prices will soon fall. "Energy will flow soon," Wright toldFox Newson Sunday. "The unknown that this could be some long, you know, drawn-out crisis [has driven up prices]. But it won't be."
Still, even if the conflict suddenly de-escalated, Antonia Syn, a gas and LNG analyst at energy research firm Rystad Energy, tells TIME that gas prices would likely take some time to return to normal levels as markets would need to watch for confirmation that production and shipping has safely resumed. And if the war leaves "lingering uncertainty around regional security," that could lead to persistent geopolitical risk premiums, Syn says, meaning higher prices for some time.
Oil shipping halted
Of the wave ofretaliatory attacksthat Iran has launched across the Middle East, its effective closure of the Strait of Hormuz—threatening to fireon any ship trying to pass—is a powerful weapon.
Shipping through the strait, a narrow waterway through which a fifth of the world's oil supply passes, has all but ground to a halt. The strait is the only sea passage from the Persian Gulf to the open ocean.
Since the U.S.-Israeli strikes on Feb. 28, merchant ships passing through the straithave been attacked, while broader aerial attacks traded between the U.S., Israel and Iran also pose a threat to vessels passing through. Iran-linked vessels have been the only commercial ships that have transited through the strait over the weekend, according toBloomberg. The last non-Iranian commercial ship to pass through Hormuz was a Chinese-owned bulk carrier on Saturday morning.
"In the whole written history of the strait, it has never been closed, ever," JPMorgan Chase analyst Natasha Kaneva told theWall Street Journal. "To me, it was not just the worst-case scenario. It was an unthinkable scenario."
Last June during the12-day war between Israel and Iran, Iran had also threatened to close the strait in retaliation for U.S.-Israeli attacks on its nuclear facilities. At the time, Peter McNally, Global Sector Lead at research firm Third Bridge, told TIME, "The world cannot replace all the oil that flows through the Strait of Hormuz, which remains the most critical chokepoint in global crude markets."
More than 14 million barrels of crude flowed through the strait per day before its closure. Saudi Arabia hasdiverted shipments of oilto the Red Sea at record levels, although that route could also face challenges from potential attacks by the Iran-aligned Houthis in Yemen, who have targeted vessels in the area since 2023 to protest Israel's bombardment of Gaza.
Oil refineries attacked, output reduced
With the strait effectively closed, some oil refiners are scaling back operations. Kuwait, the United Arab Emirates, and Iraq have reduced crude output as storage tanks have filled with backed up crude.
High gas price rises may not be as temporary as Trump and Administration officials have assured Americans they will be. Oil market analysts havesuggestedthat even if the war ended today, it could take two weeks to restore maritime traffic in the Gulf to pre-war levels and two months to return oil production to normal levels.
Energy production facilities in the Middle East have also faced attacks, directly threatening the supply of crude. Oil refineries in Saudi Arabia, Qatar, Bahrain and Kuwait have blamed Iran for strikes in the last week. On Saturday, Israelcarried out strikeson four oil storage facilities and an oil production transfer center in Iran, according to Iranian state media. Iran exports an average of 1.6 million barrels of crude per day, less than many of its neighboring Gulf states.
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On Sunday, the Iranian Revolutionary Guard Corps threatened retaliatory attacks on energy sites across the region. "If you can tolerate oil at more than $200 per barrel, continue this game," the IRGC warned the U.S. and Israel.
Some analysts foresee this war being more disruptive to global energy systems than the outset of Russia's war with Ukraine in 2022, when oil prices hit an even higher peak. "The scale of today's disruption in the Persian Gulf already is far greater than what was seen in 2022, and the implications are likely to be felt more widely than in the past," McNally says. Muyu Xu, a senior crude oil analyst at global trade analytics firm Kpler, tells TIME that further escalation in the Middle East could push prices beyond those historical highs, especially if major oilfields in the region come under attack. Still, Xu adds that de-escalation and a quick reopening of the Strait of Hormuz could bring prices down quickly, even if not immediately to pre-conflict levels.
Qatar's Minister of Energy Saad al-Kaabi toldtheFinancial Timeson Friday that Gulf producers will be forced to stop exports "within days," which would drive oil prices even higher. "Everybody that has not called for force majeure we expect will do so in the next few days that this continues," Al-Kaabi said.
On Monday, afterIran announced its new Supreme Leader, Bahrain's state oil companydeclared force majeure, which releases it of its contractual obligations due to extraordinary circumstances.
QatarEnergy, which is among the world's largest LNG suppliers, alsopartially halted productionafter one of its complexes was hit by drone strikes on March 2. "Even a short disruption removes meaningful volumes from the global balance," Syn says. "Rebalancing this loss would likely require some degree of demand destruction in price-sensitive importing countries. A closure lasting longer than two months would likely force much deeper adjustments across global energy systems."
That loss acutely impacts South Asian countries, including Pakistan, India, and Bangladesh, which depend heavily on Middle Eastern supplies, Syn adds.
And although China waspreviously better ableto weather energy disruptions in the region, includingreceiving assurancesfrom the Houthis in 2024 that they would not target Chinese vessels in the Red Sea, Beijing appears just as rattled as the rest of the world. The Chinese government directed its oil refiners topausefuel exports last week, instead prioritizing domestic needs amid fears of a deepening global energy crisis.
Oil prices surge
Already surging oil prices across the U.S. could rise even higher, according to Patrick De Haan, a petroleum analyst. A second wave of price increases is expected in several Republican states that use price cycling systems, De Haan said, like Michigan, Indiana, Ohio, Kentucky, Texas, and Florida.
Despite assurances from the Trump Administration that the war will end within weeks, thewidening conflict,skepticism over the U.S.'s plan, and Iran's apparent unwillingness tonegotiate a cease-firehave "forced traders to price in the possibility of a wider conflict," De Haan wrote in aposton X.
Read More:How Americans Feel About Trump's War With Iran, According to the Latest Polls
White House spokesperson Taylor Rogers previously told TIME that Trump has "a strong game plan to keep the energy market stable well before Operation Epic Fury began, and they will continue to review all credible options and execute on them when appropriate."
Trump isreportedlyweighing easing sanctions on Russian oil.
But McNally tells TIME that there are few alternatives to the Middle East for oil. U.S. oil production has largely flattened out, he says, in part because producers expected an oversupply of oil this year before conflict broke out. He estimates that it would take months to reup production levels, which they will almost certainly aim to do given high prices now. The world may also turn to South America, where Guyana, Brazil, and Argentina are producing just under six million barrels of oil per day at maximum capacity, McNally says. That's just a quarter of the amount that OPEC producers supply. The U.S. has also sought to increase oil production from Venezuela, but McNally says it will take years for the country to supply a meaningful amount of oil after years of deterioration of its oil industry.
The U.S. may also consider releasing strategic reserves of oil, which it did in 2022, McNally says. But U.S. stockpiles are nearly 30% below early 2022 levels, he cautions.
Volatility in energy markets is also rippling through financial markets and rattling investors. As crude prices surged, equity markets across Asia and therest of the worldslumped, with South Korea's Kospi and Japan's Nikkei benchmarkssliding sharplyon Monday.
If supply disruptions around the Gulf drag on, the current surge in oil prices may prove more enduring than the spike that followed Russia's invasion of Ukraine. Energy analysts say prolonged turmoil could amount to one of the most severe sustained energy crisessince the 1970s, when Arab oil embargoes and the 1979 Iranian Revolution choked off global exports, sent crude prices soaring, and tipped Western economies into recession.
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