By Ginika Igboke
The U.S.–Israeli war with Iran has brought significant volatility to global energy and equity markets. Oil prices climbed from about $65 per barrel before the conflict to a peak of $119 on March 9, before easing to around $100.
If disruptions to Middle Eastern oil supplies continue, analysts warn the effects will likely translate into higher gasoline prices in the United States.
Energy analysts say producers outside the Persian Gulf have limited ability in the short term to offset supply shortages quickly enough to reverse the price surge. If elevated oil prices persist, however, additional production from the United States and South America could eventually help fill the gap, though such increases would take time to materialize.
Over the longer term, the conflict could accelerate changes in global energy production and distribution as nations attempt to reduce reliance on the unstable Middle East. This shift could create opportunities for oil and gas producers in the United States and South America to expand their roles as major global suppliers.
Short-Term Volatility and Rising Gasoline Prices
Before the conflict disrupted shipping from the Persian Gulf, about 20 percent of the world’s oil flowed through the Strait of Hormuz, a 21-mile-wide passage widely considered one of the world’s most critical energy chokepoints. Although the region is less dominant than it once was, the Middle East remains a key supplier of global energy, with most shipments passing through the strait destined for China, India, Japan, and South Korea.
As long as Iran retains the capability to disrupt shipping with missiles, drones, and mines, analysts expect markets to remain highly sensitive to developments on the battlefield. Iran’s recent attacks on vessels in the Gulf have nearly halted traffic, leaving roughly 400 oil tankers idle as operators weigh the risks of navigating the strait.
“In the near term, oil markets will likely remain dominated by risk premiums tied to shipping security and military developments in the Gulf,” said Peter Earle, director of economics and economic freedom at the American Institute for Economic Research.
He said gasoline prices in the United States could rise noticeably within weeks if crude oil remains in the $100 to $120 range, as higher wholesale costs filter through to retail markets.
According to Earle, every $10 increase in oil prices typically raises gasoline prices by about 25 cents per gallon. However, the recent release of strategic reserves, alternative distribution routes, and gradual increases in production outside the Gulf could help stabilize prices if the conflict does not escalate further.
For now, efforts to offset the disruption are only partially effective. Pipelines in Saudi Arabia and the United Arab Emirates offer alternatives to shipping through the Strait of Hormuz, but their capacity is limited.
Saudi Arabia’s East–West pipeline, which runs from the Persian Gulf to the Red Sea, can transport up to 7 million barrels per day. However, analysts say operating it at full capacity for extended periods could strain the system.
The UAE’s Habshan–Fujairah pipeline, which bypasses the strait and runs to the Gulf of Oman, can move about 2 million barrels per day. Compared with the roughly 20 million barrels that typically pass through the Strait of Hormuz daily, these pipelines offer only partial relief.
Shipping in the region has also become more expensive and risky as insurers raise premiums or withdraw coverage altogether. The U.S. administration has pledged to provide military escorts and insurance guarantees for tankers, though those measures are still being finalized.
Another effort to stabilize supply involves releasing oil from strategic reserves. On March 11, the International Energy Agency announced plans to release 400 million barrels of oil from its reserves—more than double the amount released in 2022 following Russia’s invasion of Ukraine. The volume is equivalent to about 20 days of normal oil shipments through the Persian Gulf.
The International Energy Agency was established in 1974 to stabilize markets after the Arab oil embargo. Its members include the United States, Canada, Mexico, Japan, South Korea, Australia, and most European nations.
Potential for Increased U.S. and South American Production
Some analysts hope the United States could increase production to help stabilize markets, but they caution that such expansion cannot happen immediately.
“There is no chance that U.S. oil companies can ramp up quickly enough to prevent temporary gas price hikes,” said Steve Milloy, senior fellow at the Energy and Environment Legal Institute and a former adviser to the Trump administration.
Although the United States is currently producing oil at record levels, the output still covers only about two-thirds of the country’s daily needs.
Following the shale revolution, the United States became the world’s largest producer of oil and natural gas. However, many companies remain cautious after a sharp price collapse between 2014 and 2016 forced more than 600 energy firms into bankruptcy.
Because of this volatility, many U.S. producers now focus on hedging prices rather than rapidly expanding drilling operations.
Analysts say many companies require sustained oil prices above roughly $85 per barrel before committing to new drilling rigs. The limited increase in drilling activity suggests producers are still uncertain whether current high prices will last.
Even once companies decide to expand, additional production takes time.
“Shale production cannot ramp up instantly,” Earle said. Drilling programs, labor availability, pipeline capacity, and financing constraints mean it typically takes several months before higher prices translate into significantly increased output.
In the short term, U.S. producers might add only a few hundred thousand barrels per day—small compared with the roughly 20 million barrels that normally pass through the Strait of Hormuz.
South American countries such as Venezuela, Guyana, Argentina, Brazil, and Colombia could also increase production over time. However, Venezuela—despite having the world’s largest proven oil reserves—has struggled to maintain output because of decades of mismanagement.
Analysts say restoring Venezuela’s production capacity would require major investment, technical expertise, and time.
Long-Term Shifts in Global Energy Supply
Over the long term, the conflict could accelerate efforts to diversify global energy production away from the Middle East.
The United States already sources most of its oil domestically or from countries in the Western Hemisphere. About 60 percent of U.S. oil consumption is produced domestically, while roughly 70 percent of imports come from Canada and Mexico, according to the American Fuel and Petrochemical Manufacturers.
Some analysts believe U.S. producers could play an even larger role in supplying both domestic and global energy markets.
Policy experts also expect increased pressure to expand export capacity for liquefied natural gas and crude oil.
South American producers could likewise gain a larger role as the global market seeks alternatives to Middle Eastern supplies.
Another potential shift could involve refining capacity. Despite being the world’s top producer of oil and natural gas, the United States has not built a major new oil refinery since the 1970s.
Many U.S. refineries are designed to process heavy crude from countries such as Canada, Mexico, and Venezuela. By contrast, shale production primarily yields light, sweet crude, much of which the United States exports to countries with refineries better suited to process it.
Concerns about refining bottlenecks have prompted new investment. On March 10, President Donald Trump announced that America First Refining plans to begin construction this year on the first new U.S. oil refinery in half a century in Brownsville, Texas. The facility will be designed specifically to process light crude.
Implications for China
The conflict could also affect China, the world’s largest oil importer, which relies heavily on supplies from the Persian Gulf.
Any disruption around the Strait of Hormuz directly impacts China’s energy security. Even if shipments continue, increased insurance costs, higher freight rates, and longer shipping routes could raise the price of oil delivered to Chinese refineries.
China purchases more than 80 percent of Iran’s oil exports, which account for about 13 percent of China’s oil imports. It has also been the largest foreign buyer of Venezuelan crude, although that represents only about 4 percent of its imports.
Analysts say U.S. control over exports from Iran and Venezuela could potentially give Washington a strategic advantage over Beijing. However, China still has alternative suppliers, including Russia, which could increase shipments if necessary.
While losing access to Iranian and Venezuelan oil would pose challenges for China, experts say it would not necessarily threaten the country’s overall economic stability.
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