Explained: How Iran’s war is driving oil and gas prices sharply higher

Global oil prices surged this week as the war with Iran intensified, raising concerns about long-term disruptions to energy supplies in the Middle East.Oil prices surged a week after the United States and Israel launched major attacks on Iran, escalating tensions into a broader regional conflict. Ongoing hostilities have disrupted major energy routes and facilities, driving up oil and gas prices in global markets.

Oil prices climb to highest level since 2023

Oil prices continued to rise rapidly on Friday, with U.S. crude oil closing at $90.90 a barrel, up 36% from a week ago. In Friday trading alone, U.S. crude oil prices rose more than 12% to more than $91 a barrel, hitting their highest level since late 2022. U.S. crude oil prices have risen nearly 60% since the beginning of the year.Meanwhile, international benchmark Brent crude oil prices topped $94 a barrel, rising more than 9% to reach their highest level since late 2023. Analysts said the sharp rise reflected growing concerns that a war with Iran could trigger a long-term energy supply crisis.

Strait of Hormuz disruption leads to tanker stranding

The conflict has severely disrupted shipping in the Strait of Hormuz, a vital passage that handles much of the world’s oil trade.Nearly 20 million barrels of oil are typically shipped daily through the narrow waterway that connects the Persian Gulf to global markets. However, several oil tankers have been stranded in the area due to concerns about missile and drone attacks, according to the Associated Press.The conflict has also caused damage to oil and gas facilities across the Middle East, disrupting supplies. A Wall Street Journal report said Kuwait “began cutting production from some oil fields after running out of space to store bottled crude.”As the conflict expands, energy infrastructure is directly affected.Iran has launched retaliatory attacks across the region, including a drone attack on the U.S. Embassy in Saudi Arabia, as well as attacks on a major oil refinery in Saudi Arabia and a liquefied natural gas (LNG) facility in Qatar.Analysts said the attack halted the flow of refined products and temporarily disrupted about 20% of the world’s liquefied natural gas supply.Claudio Galimberti, chief economist at Rystad Energy, said the scale of disruption was growing. “We keep seeing news of attacks on ships, refineries or pipelines, so the list is long.”He said about 9 million barrels per day of oil are currently off the market due to facility closures or precautionary measures taken by producers. Galimberti added: “Right now, with all of these being closed, we are in a situation of extreme deficit.”

Fuel prices rise for consumers

Soaring oil prices have pushed up fuel costs for consumers and businesses. U.S. regular gasoline prices rose to $3.32 a gallon on Friday, up 11% from a week ago, according to AAA. Diesel prices rose 15% to $4.33 per gallon during the same period.European and Asian energy markets, which rely heavily on supplies from the Middle East, have been hit even harder. According to Rystad Energy, diesel prices have doubled in Europe due to supply disruptions, while jet fuel prices have surged nearly 200% in Asia.The conflict also roiled financial markets. On Friday, the S&P 500 fell more than 1.3% and the Dow Jones Industrial Average fell 453 points, or 1%. The Nasdaq Composite fell 1.6%.Currently, all three major stock indexes this year are in negative territory, with the Dow Jones Index recording its worst weekly performance since April 2025 and the S&P 500 Index recording its worst weekly performance since October.

“The problem is the oil deal…”

Earlier this week, U.S. President Donald Trump said U.S. military action against Iran could last four to five weeks, but added that the U.S. “has the ability to last much longer.”Trump also appeared to rule out talks with Iran unless Iran agreed to significant concessions, saying: “No deal with Iran unless there is unconditional surrender!”Al Salazar, head of macro oil and gas research at Enverus, warned that this situation is likely to continue. “The more messages we hear, the more it feels like this is going to be going on for a long time.”To help stabilize maritime trade, Trump announced a plan to insure up to $20 billion in loss insurance for ships operating in the Gulf. The initiative aims to restore confidence among shipping lines and support businesses operating in the Middle East.However, some experts say financial guarantees alone may not solve potential safety issues.Amy Jaffe, director of the Energy, Climate Justice and Sustainability Laboratory at New York University, said shipping companies remain concerned about security threats, the Associated Press reported. “The problem is that in the oil trade, oil transportation area, people are worried about counterterrorism.”“In order for the United States to create an atmosphere that eliminates the current bottleneck in the Strait of Hormuz, some credible solutions to counterterrorism issues must be presented,” Jaffe added.