Oil prices skyrocket, pushing gas prices in US to surge amid Middle East tensions

Brent crude oil surpasses $100 per barrel amid Strait of Hormuz supply concerns, Trump’s statements ease some of the rise, but US gas prices shoot up 16% this week, leaving Americans to pay the price for the joint US and Israeli attacks on Iran

Escalating military tensions in the Middle East have rattled global energy markets amid supply security concerns, while skyrocketing oil prices pushed up US gas prices, forcing Americans to pay the price for the joint US and Israeli attacks on Iran. In response to the joint attacks, Tehran’s retaliatory closure of the Strait of Hormuz disrupted traffic through one of the world’s most critical oil transit points. Tanker traffic in the region came to a standstill, disrupting roughly one-fifth of global oil supply and affecting shipments from producers such as Saudi Arabia, Kuwait, the UAE, and Iraq. Some refineries partially halted production, while others scrambled to refill their stocks. Tehran’s retaliatory attacks on the energy infrastructure of neighboring countries further deepened the supply crunch. Brent crude oil rose to more than $114 per barrel since the conflict began, reaching as high as $120 on Monday. US President Donald Trump said the war could end soon in an interview on CBS News, noting that the US had achieved its objectives faster than the previously predicted four-to-five week timeframe. Trump also suggested seizing the strait, causing Brent crude oil to fall below $84 per barrel. At a Miami press conference, Trump claimed the US had destroyed Iran’s nuclear and missile capabilities, as well as its navy and said the war would end soon. He threatened further military action if Tehran disrupts the global oil supply. Brent crude oil could reach up to $150 per barrel if military strikes in the Middle East continue and supply disruptions persist, analysts say. Rising oil prices affect gas prices and inflation Each $1-per-barrel increase in oil prices pushes US gas prices up by 2.5 cents. The average US gas price surged 16% from last week to $3.48 per gallon, according to the American Automobile Association (AAA). The average gas price was $2.99 per gallon a week ago and $2.9 a month ago, the data showed. Gas prices in the US vary by state. California has the highest average at $5.2 per gallon. Following California, gas costs $4.63 per gallon in Washington state, $4.52 in Hawaii, and a little over $4 per gallon in Nevada and Oregon. The average gas price remains under $3 per gallon on average in Arkansas, Missouri, Oklahoma, and Kansas. The rise in oil prices also shoots up gas prices -- not only the gas used in passenger cars but also the price of diesel, which is key for the logistics sector -- as well as the price of jet fuel used in the aviation sector. As tankers are stranded in the Strait of Hormuz, tightening crude oil supply worldwide and adding up price pressure, the rise in energy costs are under the spotlight as rising prices can impact macroeconomic balances. The Fed has been trying to bring inflation down to its 2% target for a long time, but the recent energy price surges may add upward pressure again. Fuel prices can drive up logistics costs for food and other basic consumer goods as transport costs surge. The US consumer price index (CPI) rose 2.4% year-on-year in January, signaling a slowdown, but the risk of a prolonged energy shock after tariffs gave way to the risk of inflation deviating from the target. If the conflict ends quickly, prices could bounce back within a few weeks, but Washington’s refusal to accept anything other than an unconditional surrender from Iran and the ongoing risks to strait traffic despite tanker protection pledges complicate market decisions, analysts say. Steven Kamin, a senior fellow at the American Enterprise Institute, told Anadolu that the impact on inflation depends on how high prices are and how long they remain high. Kamin stated that oil price shocks may give way to increases in inflation and inflation estimates if they are not offset by monetary policy, as was the case in the 1970s. He noted that inflation will begin to decline again toward the 2% target if the war in Iran ends and oil prices fall, and that there will be no new waves of tariffs. Kamin mentioned that the Fed generally maintains current rates in the face of temporary oil price shocks but the bank is already under a lot of pressure with job growth slowing and inflation running above the target, so the bank may maintain rates in its next few meetings. A recent Oxford Economics analysis showed that the US economy will remain resilient but the rise in oil prices will widen the gap between low and high-income consumers. The longer the military conflict lasts, the more American households will feel the pressure of high prices, while the high oil prices will risk slowing investments and employment amid real income shock and heightened uncertainty. The Fed is generally expected to resume rate cuts by mid-year despite the conflict, according to the analysis. The Fed may deem high oil price-induced inflation increases as a one-off development but would remain alert to any movements in long-term inflation estimates, which have been calm so far.