What Trump’s war on Iran means for the US energy crunch

Fuel prices jumped after the Trump administration launched strikes against Iran on Saturday, immediately raising questions about whether the war would raise energy costs for Americans, put more strain on power grids and push companies to pump more oil and gas into the United States. If the conflict drags out, that could potentially play a role in Donald Trump’s plans to “drill, baby, drill” — but that doesn’t necessarily protect Americans from rising energy prices.

Keep in mind that it is still too early to tell what kind of war the United States may have started. The surge in global oil prices may be short-lived. But prolonged conflict and disruptions in oil and gas production in the Middle East could reshape the global flow of fossil fuels.

A longer military engagement could potentially change forecasts for fossil fuel production in the United States – already the world’s largest producer of oil and gas. It also risks exacerbating an increasingly important pain point for the Trump administration: rising costs for Americans as the nation’s energy demand rises.

“It’s an interesting balance to walk because an environment of higher oil prices, which encourages increased oil production, fits into the ‘drill, baby, drill’ mantra, but it also reflects an environment in which energy and particularly gasoline prices are likely more expensive,” said Reed Blakemore, director of research and programs at the Atlantic Council’s Global Energy Center.

“The balance between how the consequences of this war with Iran play out in U.S. energy affordability and U.S. oil and gas production is a very important space to watch, particularly in the times we live in.” [move] ahead of the midterm elections in November,” Blakemore says. Soaring electricity costs, particularly amid the rush to build new energy-intensive data centers, have already become a hot topic in local elections across the United States.

The international price of crude oil rose 8% to around $84 a barrel on Tuesday, its highest level since July 2024. That pushed the price of gasoline up 10 cents to an average of $3.11 a gallon in the United States. The cost of liquefied natural gas (LNG), a more important fuel source for electricity and heating, has soared 45 percent in Asia and 30 percent in Europe.

Since the start of the conflict, all eyes have been on the Strait of Hormuz which borders Iran, the United Arab Emirates and Oman, through which a fifth of the world’s oil consumption and LNG trade generally passes. That shipping stopped this week amid reports that Iran’s Revolutionary Guards threatened to fire on the ships and marine insurers changed or canceled their policies. The Trump administration now says it will provide naval escorts and hazard insurance to ships passing through the strait.

“How much oil can continue to flow? That’s the question everyone is asking now,” says Mohith Velamala, an oil and downstream chemicals specialist at BloombergNEF.

Because the United States already produces a lot of oil and gas, it is more isolated than other countries more dependent on fossil fuels from Iran and its neighbors, notably Qatar, where energy infrastructure has been targeted by Iranian attacks. If anything, rising oil prices could potentially encourage more oil and gas production in the United States. This has been a key priority for the Trump administration amid the president’s obsession with “American energy dominance.”

Despite President Trump’s efforts to boost the fossil fuel industry since returning to office, forecasts for actual production have changed little. Before the U.S. strikes on Iran this weekend, BNEF projected just a 2.5% increase in U.S. oil production between 2026 and 2030. This is largely due to a global oil supply glut that is driving prices down. With the escalation of war in the Middle East, we may begin to see this trend reverse.

However, it’s still a waiting game. The current oversupply of oil has likely softened the impact of the conflict on markets, and price spikes could be temporary if fighting stops and the Strait of Hormuz opens again to shipping. U.S. fossil fuel companies will want to make decisions to increase production based on longer-term structural changes rather than one-off geopolitical events. As important as this week’s events are, companies should make sure the capital needed to open new wells is worth it. The Trump administration apparently so far sees no need to draw on the country’s strategic oil reserves.

The calculus will likely change if the conflict lasts more than four to five weeks, which Trump said Monday was a possibility. At this point, more serious discussions could take place about increasing production as the market shifts to a tighter supply environment, experts say. Increasing production also “gives the United States more flexibility for these types of situations where they see a national security risk that might have ancillary energy security challenges,” Blakemore says. In other words, it’s a measure that can protect Americans from some of the financial pain of war.

However, in a worst-case scenario, natural gas prices could rise further, affecting Americans’ utility bills. The United States is a leading exporter of LNG and Trump has sought to further increase exports of the fuel. If the United States begins to fill a declining flow from Qatar — also a major LNG exporter — that could theoretically begin to reduce the supplies available to Americans. Electricity costs could skyrocket, and they are already rising in the United States as demand for electricity increases for the first time in more than a decade.

Certainly, this would be possible in “a very extreme scenario” with a prolonged disruption in the Strait of Hormuz that would essentially remove Qatari LNG from the market, Blakemore says. “I don’t think that’s possible at the moment.” But we may not have a clearer idea of ​​how this conflict is likely to play out and what it means for energy until next week, he adds.

We saw something similar happen after Russia’s invasion of Ukraine, which raised electricity and gasoline prices in the United States and across Europe. This is a protracted conflict that has triggered new sanctions and increased US LNG exports to the EU and UK – the kind of structural changes in the market we have yet to see so soon after the escalation of fighting with Iran.

There is also an argument that reducing reliance on fossil fuels would limit the volatility of energy prices. “The current crisis is just another example of the instability and risks associated with reliance on fossil fuels,” Lorne Stockman, co-director of research at the environmental group Oil Change International, said in an email. “There is already an energy affordability crisis in the United States, triggered by rising gas prices and rising electricity demand. This can only get worse if the situation in the Gulf continues.”

If the conflict persists, it could reinforce the idea that a diversified energy mix including renewables and nuclear power would enhance energy security, Blakemore says. However, Trump has worked to cut tax credits and federal funding for wind and solar projects as part of his push to boost fossil fuels. Federal subsidies for fossil fuels reach nearly $35 billion a year, according to an Oil Change International report released last year.