4 Key Signs Gas Prices Will Spike Due to Shortages in the Middle East
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Rising conflicts in the Middle East may threaten that stability. Recent actions by Israel and Iran could directly impact what Americans pay at the pump.
Here are four key signs that gas prices will spike due to shortages by oil-producing countries in the Middle East.
Iran Closing the Strait of Hormuz
Americans may have heard reports of Iran considering closing access to the Strait of Hormuz. The Strait provides the only route from the Persian Gulf to the open ocean. Iran controls the northern side of the Strait. Closing access to it could have a significant impact on the price of oil.
The New York Times indicated why this would be important, noting, 'A quarter of the world's oil and 20 percent of the world's liquefied natural gas passes through the Strait of Hormuz, so mining the choke point would cause oil and gas prices to soar.' While most of the oil going through the Strait goes to Asia, America would feel the impact of a move with increased energy costs.
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Continued Tensions
Any time military action occurs, it can lead to a potential increase in cost, particularly when commodities are impacted. Continued hostilities in the Middle East will only exacerbate the risk of increased oil prices.
'With Israel and Iran trading attacks, oil prices have surged to multi-month highs — setting the stage for additional price hikes at gas pumps across the country. As long as tensions in the Middle East continue to escalate, the risk of further impacts on oil prices remains high,' said Patrick De Haan, head of petroleum analysis at GasBuddy, in an interview with Fortune.
De Haan noted Americans can expect prices to increase by $0.10 to $0.20 per gallon in the near term, if not more. 'Motorists should prepare for what will likely be modest price increases, for now, but the situation has the potential to worsen at any moment,' said De Haan.
Possible Regime Change
Military action typically poses a risk to the price of goods, but regime change can be even more detrimental. Iran's Supreme Leader, Ayatollah Ali Khamenei, had not been publicly heard from for nearly a week after the United States bombed sites in Iran.
Added to that, President Trump hinted at a possible regime change. And historically, regime changes have significantly increased oil prices
Regime change could send oil prices significantly higher, particularly if it results in a loss of oil from Iran. 'The main concern is any disruption to energy flows and global confidence. A complete loss of Iranian oil, which accounts for 4% of global production, could push crude to $100 per barrel,' according to J.P. Morgan.
OPEC+ Cuts Production
OPEC and OPEC+ countries account for roughly 60% of the world's crude oil, according to the U.S. Energy Information Administration. There have been no indications that nations will cut production in light of recent actions in the Middle East. However, any move to cut production typically results in increased costs at the pump.
Worse yet, the Strategic Petroleum Reserve (SPR) is at historically low levels, partly due to actions taken by the Biden administration. Additionally, there are no plans to replenish it.
The combination of not refilling the SPR could prove costly if OPEC does reduce production. 'The decision not to refill the emergency reserve is significant for U.S. consumers and energy security. The SPR's depleted status limits the government's ability to intervene during supply shocks or price spikes, potentially leaving American families and industries more exposed to global oil market volatility,' according to Newsweek.
While gas prices have been relatively stable of late, activities in the Middle East could cause prices to spike. It's best to stay informed and identify ways to save at the pump for Americans concerned with gas costs.
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This article originally appeared on GOBankingRates.com: 4 Key Signs Gas Prices Will Spike Due to Shortages in the Middle East
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