How the spiraling Iran conflict could affect data centers and electricity costs

Shortly after the Trump administration launched its war on Iran, I called Reed Blakemore, director of research and programs at the Atlantic Council Global Energy Center, to talk about the aftermath. With oil and gas prices already rising, there was even greater hope that the impact of the conflict would be short-lived. At the end of our conversation, Blakemore said clearly: “Let’s remember. [next week] … We will have a much clearer picture of what the conflict will look like and what the evolution of energy will actually be like in the future.

A week later, the conflict has only intensified since the United States and Israel launched strikes against Iran, killing Supreme Leader Ayatollah Ali Khamenei. Energy infrastructure has become a key lever in the ongoing war, with Israel striking Iranian fuel depots and Iran targeting its Gulf neighbors’ oil and gas infrastructure in its own strikes. Iran’s paramilitary Revolutionary Guards threatened Tuesday to “not allow the export of a single liter of oil from the region to the hostile side and its partners until further notice.” Iran has also reportedly begun laying mines in the strategic Strait of Hormuz, through which a fifth of global oil consumption and liquefied natural gas (LNG) trade once passed.

I spoke to Blakemore again today about what Iran’s continued hold on the Strait of Hormuz means for energy costs and the rush by U.S. tech companies to build energy-intensive AI data centers.

This interview has been edited for length and clarity.

What is your view today of the likely impact of the conflict on oil and gasoline prices?

Reed Blakemore: The fundamental question right now, in terms of the energy implications of the conflict, is how the market responds to uncertainty over the security of passage through the Strait of Hormuz.

At the start of the dispute, when we saw an increase in insurance premiums for these ships, we talked about it largely in the context of: Hey, it’s become a lot more expensive for a ship to cross the Gulf and so they’re staying out.

We’ve moved from that to real concerns about the safety of passing through the straits, so it’s no longer as much about insurance cost as it is about safety and security.

We have virtually no traffic passing through the Strait of Hormuz. Many countries are starting to stop production. So there’s already this ripple effect that’s happening simply because the market and essentially the tankers are fundamentally concerned about whether or not they’ll be able to cross the strait safely.

The other aspect to which the market has reacted strongly in recent days is the notion of the duration of this conflict. And I think you can take the president’s comments over the last 72 hours and the market reaction as a major piece of evidence to that end. Over the weekend, when the campaign had clearly intensified, uncertainty over whether or not the Strait of Hormuz would open began to reach fever pitch. The reaction of the markets when they opened in Asia on Sunday, going from $100 a barrel to almost $120 a barrel, was actually because the market didn’t feel like it was going to be over any time soon. The pushback we saw yesterday was a response to the president’s comments which basically said that Hey, we have an end in sight to this conflict.

The United States is a major oil producer. I believe that America’s strategy of energy dominance played an important role in protecting American consumers from the early commercial consequences of the decision to go to war with Iran. The price increases we have seen so far would have been much more sensitive to market volatility. This bought the administration some time in terms of how long it will be before gas prices really start to accelerate nationally. But as this conflict persists and market volatility continues, we will unfortunately begin to see upward pressure on gasoline prices over time.

American energy dominance can do little to protect American consumers from what constitutes a global oil market. As the United States is a major domestic oil producer, it has the ability to exert some downward pressure on its own gasoline prices.

But because through its oil exports it participates in a global market, it is exposed to the volatility of the global oil market.

Can we expect electricity prices to rise too? For what?

For the United States, the gas situation is a little better, but it is also not immune to the global market. Natural gas is traded largely regionally in the United States. The United States is a major producer of natural gas for domestic consumption, which further isolates it. This makes the U.S. case very different from the gas price sensitivity we see in Europe, Japan, or other parts of East Asia.

The problem is similar to oil, as the United States is a major exporter of LNG. As natural gas prices rise elsewhere, LNG exporters will be incentivized to export more gas because that is where the arbitrage opportunities lie, which will create upward pressure on prices domestically in the United States.

What risks does this pose for tech companies and this push to build more AI data centers and associated energy infrastructure?

In the United States, the majority of data centers built began to be powered by natural gas. We are not going to see electricity prices reach crisis point in the United States in the near term because of this conflict. The time horizon we are talking about with gas and therefore electricity prices is probably on the order of months rather than weeks as might be expected with oil.

However, the longer this conflict goes on, the more we see tensions in the global gas market – this will eventually permeate the United States and create this upward pressure on gas prices in a way that will then affect electricity prices and then bring the data center issue into play.

I think what’s unique is that it doesn’t necessarily affect the ability of data centers to purchase power. Electricity costs represent a relatively marginal proportion of the cost of building and operating a data center. In reality, this only aggravates the energy affordability problems that are currently deteriorating the social acceptability of data centers in the country. The impact on electricity prices is therefore unlikely to directly harm data center construction. The ancillary affordability issues this will create will further entrench popular discontent with data center construction, as data centers only make consumers’ electricity bills much more expensive.