A military conflict involving Iran could result in consumers and businesses around the world enduring elevated fuel costs for an extended period, even if hostilities cease rapidly, according to energy market analysts.
The situation creates broader economic concerns and presents political challenges for President Trump as midterm elections approach, with American voters particularly sensitive to energy costs and skeptical of overseas military involvement.
“The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption, as refinery shutdowns and export constraints begin to impair crude processing and regional supply flows,” JP Morgan analysts said in a research note on Friday.
Military actions have already interrupted approximately one-fifth of worldwide crude oil and natural gas production, as Tehran has targeted vessels navigating the critical Strait of Hormuz waterway between Iranian territory and Oman, while simultaneously striking energy facilities throughout the region.
International oil costs have jumped 24% during the current week, reaching above $90 per barrel and heading toward their sharpest weekly increases since the pandemic began, pushing fuel expenses higher for consumers globally.
The near-total closure of the Strait has forced major regional oil exporters including Saudi Arabia, the United Arab Emirates, Iraq and Kuwait to halt deliveries of approximately 140 million barrels of crude oil – equivalent to roughly 1.4 days of worldwide consumption – to international refineries.
Consequently, petroleum and gas storage facilities throughout the Middle East Gulf region are approaching capacity, compelling Iraqi oil fields to reduce production while Kuwait and the UAE will likely follow suit, according to industry analysts, traders and sources.
“At some point soon, everyone will also shut in if vessels do not come,” said a source with a state oil company in the region, who asked not to be named.
Oil production facilities across the Middle East that are forced to cease operations due to shipping interruptions may require considerable time to restore normal output levels, explained Amir Zaman, head of the Americas commercial team at Rystad Energy.
“The conflict could be ended, but it could take days or weeks or months, depending on the types of fields, age of the field, the type of shut in that they’ve had to do before you can get production back up to what it once was,” he said.
Iranian military forces are simultaneously attacking regional energy infrastructure including refineries and terminals, forcing operational shutdowns, with some facilities suffering significant damage from strikes and requiring extensive repairs.
Qatar announced force majeure on its substantial gas export operations Wednesday following Iranian drone strikes, and sources indicate it may require at least one month to restore normal production capacity. Qatar provides 20% of global liquefied natural gas supplies.
Saudi Aramco’s massive Ras Tanura refinery and crude export facility has also suspended operations due to attacks, though damage assessments have not been disclosed.
White House officials have defended military action against Iran, claiming the nation presented an immediate danger to the United States, though specific details have not been provided. Trump has also expressed concerns regarding Iran’s nuclear weapons development efforts.
While a swift conclusion to hostilities would calm markets, returning to pre-conflict supply levels and pricing could require weeks or months depending on infrastructure damage and shipping recovery.
“Considering physical damage due to Iranian strikes, so far we have not seen anything that would be considered structural, although the risk remains as long as the war continues,” said Joel Hancock, energy analyst, Natixis CIB.
The primary concern for energy supplies involves when the Strait of Hormuz will become secure for shipping operations again. Trump has proposed naval protection for oil tankers and pledged U.S. insurance coverage for vessels operating in the region.
However, waterway security may prove difficult to achieve, as Iran possesses the capability to maintain drone attacks on shipping for months, according to intelligence and military sources.
The crisis may also prompt nations to increase their strategic petroleum reserves in coming weeks and months after fighting ends, having exposed the risks of limited inventories. This would boost oil demand and maintain higher prices.
Meanwhile, the interruption of energy shipments is creating ripple effects through supply chains and economies in import-dependent Asia, which obtains 60% of its crude oil from Middle Eastern sources.
In India, state-operated Mangalore Refinery and Petrochemicals announced force majeure on gasoline export shipments, sources reported this week, joining numerous regional refineries unable to meet sales obligations due to supply shortages.
At least two Chinese refineries have reduced operations. China, a major regional supplier, has requested refineries halt fuel exports. Thailand has similarly suspended fuel exports, while Vietnam has stopped crude oil shipments.
The disruption has benefited Russia, with prices for Russian crude increasing as the U.S. granted Indian refiners a 30-day exemption to purchase Russian oil as a substitute for lost Middle Eastern supplies. Washington had previously pressured India to reduce Russian oil purchases under tariff threats.
In Japan, the world’s second-largest LNG importer, baseload power futures for Tokyo beginning in April rose more than one-third this week on the EEX exchange in anticipation of higher fuel costs. In Seoul, motorists formed lines at gas stations expecting rising pump prices.
For European consumers, the gas supply crisis and increased prices represent a double burden. The region suffered most severely from gas supply disruptions caused by sanctions on Russian energy imports following Russia’s 2022 invasion of Ukraine.
Europe shifted to LNG imports to replace Russian pipeline gas. Europe now must purchase 180 additional LNG shipments compared to last year to fill gas storage to required levels before next winter.
Supply risks to the United States are more limited, as the country has become the world’s largest oil and gas producer in recent years. However, U.S. crude and fuel prices move alongside international crude markets, affecting pump prices for gasoline and diesel despite abundant domestic supply.
U.S. average retail gasoline reached $3.32 per gallon nationally on Friday, increasing 34 cents from the previous week, according to AAA. Diesel prices hit $4.33 per gallon, up from $3.76 per gallon one week earlier.
Rising pump prices represent a significant risk for Trump and Republican colleagues heading into November midterm elections.
“Gasoline prices are psychologically powerful,” said Mark Malek, chief investment officer at Siebert Financial. “They are the inflation number that consumers see every single day.”
