Israel-Iran conflict expected to hike US gas prices, experts say. Here's how much.

Amid escalating tensions between Israel and Iran, U.S. oil prices have surged over 20% in June, potentially driving U.S. gas prices up by an estimated 6% to $3.40 per gallon, according to GasBuddy. Experts warn that a further escalation impacting Middle East oil production or shipping routes like the Strait of Hormuz could trigger a more severe spike, potentially pushing oil to $120 per barrel and gas prices above $5 per gallon, mirroring past price reactions to conflict, though S&P Global suggests prices could recede if tensions de-escalate without supply disruptions.

Analysis

Escalating geopolitical tensions between Israel and Iran have precipitated a significant surge in U.S. oil prices, with West Texas Intermediate futures climbing over 20% in June to a near five-month high. This development is expected to translate into higher U.S. gasoline prices, with industry analysts like Patrick de Haan from GasBuddy forecasting a potential increase in the national average to $3.40 per gallon, representing an approximate 6% rise, as the nation approaches the busy 4th of July travel period. The situation carries substantial upside risk for energy prices; a more severe escalation, particularly one impacting critical oil shipping routes such as the Strait of Hormuz—through which about 20% of global oil supply transits—or damaging Iranian oil infrastructure (Iran accounts for roughly 3% of global oil output), could propel crude oil prices from current levels around $73 per barrel to as high as $120 per barrel, according to forecasts from Ramanan Krishnamoorti at the University of Houston and asset management firm Lazard. Such a scenario would likely push U.S. gasoline prices above $5 per gallon. Conversely, Richard Joswick from S&P Global Commodity Insights notes a precedent from October where similar tensions caused a temporary price spike that later subsided when escalation was avoided and oil supply remained unaffected, suggesting a potential for price moderation if the current conflict follows a similar trajectory. The overall market sentiment is 'moderately negative' with a 'cautious' tone, and the situation registers a high market impact score of 0.8, underscoring the significant potential for market volatility.

Key Decisions for Investors

• Investors should closely monitor the evolving geopolitical situation between Israel and Iran, as direct impacts on oil production or transit through the Strait of Hormuz could trigger significant energy price increases and heightened market volatility.
• Consider evaluating portfolio sensitivity to energy price shocks, particularly potential inflationary pressures and impacts on consumer-dependent sectors, given the forecast for a 6% rise in gas prices with a more severe scenario pushing oil to $120 per barrel.
• Acknowledge the potential for short-term price spikes in energy commodities while also noting the possibility of price reversion if the conflict de-escalates without sustained disruption to oil supply, as suggested by historical precedents and analysis from S&P Global.