The Iran-U.S. conflict "ignited" the oil and gas market. How high can prices go? Read to understand.

As the war between the United States and Iran sweeps through the Middle East with no clear end in sight, the global oil market is facing its worst situation, increasing the risk of long-term supply disruptions and potentially dragging down the global economy.

With shipowners taking precautions, tanker traffic passing through the Strait of Hormuz—the world’s most important oil shipping chokepoint—has come to a halt. Iran is located on one side of the Strait of Hormuz, and energy consultancy Kpler predicts that by 2025, about one-third of global seaborne oil exports will pass through this strait, mainly from key suppliers like Saudi Arabia and Iraq.

Meanwhile, according to CCTV News, a senior advisor to the Iranian Islamic Revolutionary Guard Corps stated late on March 2 local time that the Strait of Hormuz has been closed, and Iran will target all ships attempting to pass through the strait. The IRGC has not yet issued an official statement.

Additionally, Iran has expanded its retaliatory strikes to regional energy facilities. On Monday, Qatar shut down liquefied natural gas (LNG) production after two drones attacked critical facilities. About 20% of global LNG exports come from the Gulf region, mainly Qatar, passing through the Strait of Hormuz, and these natural gas supplies will also be unreplaceable.

In a recent report, Natasha Kaneva, head of Global Commodities Research at J.P. Morgan, told clients: “Our original baseline was that unprecedented chaos was unlikely to occur. But that assumption has been proven wrong. This war has led to the near-complete halt of Strait shipping for the first time in modern history.”

On Monday, international crude oil futures settled more than 6% higher, after surging over 12 earlier in the session. European natural gas futures prices soared over 40%. Prices could rise further, depending on the duration of the war and whether Iran will attack Persian Gulf energy infrastructure.

Patrick De Haan, head of Petroleum Analysis at GasBuddy, said U.S. drivers are likely to see gasoline prices rise today or tomorrow. Over the next week, the average gasoline price at gas stations is expected to increase by 10 to 30 cents per gallon.

How high could oil and gas prices go?

Francisco Blanch, chief commodities strategist at Bank of America, said if Iran takes a hard stance and attacks nearby energy facilities, Brent crude could surge above $100 per barrel, and European natural gas prices could break €60 per megawatt-hour.

He also added that a long-term disruption of the Strait of Hormuz could push Brent crude prices up by $40 to $80 per barrel.

Kaneva noted that if the war lasts more than three weeks, the Gulf countries’ oil storage capacity will be exhausted, as crude oil will have “nowhere to go,” forcing production to stop. The Morgan Stanley analyst said that in such a scenario, Brent crude could reach $120 per barrel.

According to CCTV News, U.S. President Trump stated on Monday that military actions against Iran could last 4 to 5 weeks, and he said he is prepared for “a timeframe far beyond that.” Trump also claimed that the U.S. aims to completely destroy the Iranian navy and has already sunk 10 of its vessels.

Deutsche Bank analyst Michael Hsueh told clients in a Monday report that if Iran successfully blocks the Strait of Hormuz using mines, anti-ship missiles, and other weapons, Brent crude could surge to $200 per barrel.

It is worth noting that the last time oil prices hit $100 per barrel was after the Russia-Ukraine conflict erupted in February 2022. The AAA predicts that by June this year, U.S. gasoline prices could reach a record high of $5.016 per gallon on average nationwide.

On the other hand, Blanch said that if hostilities end quickly, oil prices could fall back to the $60 to $70 per barrel range.

“If hostilities end within a few days of a new leader taking office, the tension might only cause minor disruptions to the oil market,” he added.

(Source: Caixin Global)