Oil prices traded higher March 3 as the U.S.-Israel-Iran war widened, setting up steeper prices for some of the items American consumers depend on.
Brent crude, which is the global benchmark and the metric most affected by the Middle East conflict, jumped 9% to trade near $85 a barrel Tuesday morning, the highest in about 18 months and a roughly 25% increase in just a few days.
All eyes are on the Strait of Hormuz, through which roughly 20% of all global oil supplies flow, and which has effectively been choked off by Iranian forces.
Although prices have been rising since the strikes began, it seems the intensity of the escalation on Monday and Tuesday may have taken markets by surprise, said Rachel Ziemba, an independent energy analyst and adjunct senior fellow at the Center for a New American Security.
“If anything, the transit disruptions that are starting to happen have been greater than what markets were expecting,” Ziemba told USA TODAY. Traders will be watching to see how the U.S. responds Tuesday to move the strait from “frozen and implicitly blocked” to more open, she said.
“If that’s not successful I think we could see prices go to $90 or more,” she said.
How do oil supply chains impact consumers?
In a Tuesday morning report, petroleum analyst Patrick De Haan explained that the strait carries more importance for global energy markets than just the 20% of oil supplies that flow through it.
“When risk rises around that corridor, markets price in the possibility of constrained flows immediately,” he wrote. “Risk alone can function like a supply restriction.”
As previously reported, oil from Venezuela, which the U.S. now effectively controls, cannot replace the lost output from the Middle East.
Pain at the pump and for home heating
After three days of conflict, the consumer products that depend on oil are starting to feel the pinch.
As of mid-morning east coast time, the national average price of gas was $3.089/gallon, according to GasBuddy.
And March 2 marked the largest single-day jump in prices since March 4, 2022, which was the early days of the Russian invasion of Ukraine, De Haan said.
Look for home heating oil costs to spike as well, Ziemba said, after a cold, snowy winter that saw many households spending more on heating costs than in past years.
On the one hand, “spring is getting closer,” Ziemba said, meaning less demand for heating oil. But on the other, De Haan points out, Americans drive more as the warmer months roll on.
Meanwhile, beyond the Strait of Hormuz, there are still concerns about energy infrastructure, Ziemba said. Did producers that shut down their equipment as a precaution manage to keep everything protected? “The question is not only how long do they stay shut in, but how quickly they can get back online,” Ziemba said.
In addition to the specific products that households consume, higher energy prices also boost inflation measurements, Goldman Sachs analysts wrote in a March 2 analysis, even as they weigh on economic growth.
While it’s too early to say that the U.S. economy will suffer any significant “stagflation,” which is the combination of low growth and high prices, the current scenario may complicate matters for the Federal Reserve’s decisions about whether to raise or lower interest rates.
This article originally appeared on USA TODAY: Oil surges, gas tops $3 nationwide as war heats up. What comes next?
Reporting by Andrea Riquier, USA TODAY / USA TODAY
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