War in Iran Spiked Oil Prices. Trump Will Decide How High They Go

Oil prices surged Monday following U.S. and Israeli attacks on Iran over the weekend, with some analysts predicting they could soon surpass $100 a barrel. Amid increasing attacks on oil and gas infrastructure in the region and a halt to traffic on a crucial shipping route, experts tell WIRED that how the White House directs the conflict in the coming week, as well as the responses of Iran and other oil producers, will be key in determining how high prices ultimately rise.

The price of Brent crude jumped to nearly $80 a barrel, an increase of nearly 13% from Friday’s prices, as markets opened Sunday evening. The market has been pricing in the risk of an aggressive U.S. stance toward Iran for months, says Tyson Slocum, director of the energy program at the progressive think tank Public Citizen, protecting prices from rising even further. But the United States’ disorganized follow-up to the initial attack — which killed Ayatollah Ali Khamenei, Iran’s supreme leader — introduces far more uncertainty.

“Even though Trump said, ‘Hey, you know, we took out Khamenei, we knew exactly where he was’ — apparently we didn’t do the same thing for Iran’s attack capabilities,” Slocum said. “It seems our plan was to eliminate Khamenei and then hope for the best. »

Iran controls the Strait of Hormuz, one of the world’s most important shipping routes. One in five barrels of oil passes through the strait. Major members of the Organization of the Petroleum Exporting Countries (OPEC), the world’s main oil and gas cartel, rely almost entirely on the strait to move their products out of the region.

“For as long as I’ve been working in the oil market, Iran and the closure of the Strait of Hormuz is sort of the ultimate risk scenario for prices,” says Rory Johnston, a Canadian oil market researcher. Usually, he said, OPEC would respond to an international crisis involving oil by increasing production. “But if OPEC’s emergency production is on the other side of the problem area, it’s not of much use.” Johnston likens the area to a garden hose, where a kink in one section can decrease yield.

Throughout the weekend, as Iranian officials sent mixed messages about officially closing the strait, traffic crossing the strait fell to near zero. Insurance companies have tightened their policies on ships crossing the strait, while some vessels have been hit by drone strikes. According to Johnston, what appears to be happening is more of a “voluntary closure” than an official closure.

There are worse scenarios for oil prices that could happen in the coming days than simply closing the strait. In September 2019, drones struck major oil production facilities east of the Saudi capital Riyadh. While the Houthi rebel movement in Yemen publicly claimed responsibility for the attack, U.S. officials blamed Iran for the attack. The attack temporarily caused oil prices to rise by 15 percent.

On Monday, Saudi officials said they had closed a major domestic refinery following drone strikes, while a few other oil and gas fields in the region were also closed. Qatar LNG, the country’s state-owned producer of liquefied natural gas, announced Monday that it was halting production due to drone strikes, sending gas prices in Europe soaring. Johnston says continued serious strikes like these could have a huge impact on prices.

“Going back to the garden hose thing… [that would be] it’s more like taking a gun and blowing the faucet,” Johnston says.

Clayton Seigle, a senior fellow at the Center for Strategic and International Studies, a Washington, D.C.-based think tank, agrees. “The more desperate Iran is, the more likely it is to use energy as leverage to advance its interests,” he says. “If oil tankers abandon the Gulf trade in large numbers, and certainly if significant oil infrastructure is damaged, we will likely see triple-digit crude prices again.”