Israel-Iran Conflict: What It Means for Gas Prices and Global Oil Markets

How the Israel-Iran Conflict Could Impact Gas Prices and Global Energy Markets

Rising Tensions Trigger Fears of an Oil Supply Shock

The recent Israeli airstrikes on Iran have sent shockwaves through global energy markets, raising concerns about a potential surge in gasoline prices just as the summer travel season begins. The escalation threatens critical oil supply routes and could disrupt fuel prices worldwide.

Why Gas Prices Are Under Pressure

Until now, gas prices in the U.S. had remained relatively low and stable, helping ease inflation and offering relief to consumers. However, the geopolitical turmoil in the Middle East is changing that dynamic quickly. On the day of the strikes, U.S. crude oil surged by up to 14%, before settling around a 6% increase—its biggest single-day gain since April 2023.

This dramatic rise has investors and analysts warning of a ripple effect at the pump. GasBuddy’s petroleum analyst Patrick De Haan forecasts gas prices could increase by 10 to 25 cents per gallon in the coming weeks, pushing the national average beyond the current $3.13 mark.

What’s Fueling the Market Reaction

Crude Oil's Sensitivity to Middle East Conflicts

The oil market is highly reactive to geopolitical tensions, especially when they involve OPEC producers or routes like the Strait of Hormuz, through which nearly one-fifth of global oil supply flows. A disruption in this narrow but vital waterway would have severe consequences.

Analysts like Helima Croft from RBC Capital Markets warn that Iran could return to its 2019 tactics—targeting tankers, pipelines, or key energy hubs—which would amplify supply risks and likely push oil prices above $100 per barrel.

Historical Precedent: Lessons from 2022

The current scenario echoes early 2022, when Russia’s invasion of Ukraine caused oil prices to skyrocket and drove U.S. gas prices to a record high of $5.02 per gallon. Today’s energy markets enter this conflict with lower prices, offering a small cushion, but remain vulnerable to further escalation.

Investment Implications: How Markets Might React

Short-Term Volatility, Long-Term Strategy

• Energy Stocks: Oil and gas producers like ExxonMobil, Chevron, and Halliburton could benefit from rising crude prices. Energy ETFs (e.g., XLE) may also see a boost.

• Safe Haven Assets: As uncertainty grows, demand for gold and Treasury bonds may increase, providing hedges against inflation and volatility.

• Consumer Stocks: Companies dependent on transportation (airlines, delivery, logistics) may suffer from higher fuel costs.

What Could Contain the Price Surge?

OPEC’s Strategic Response

OPEC, particularly Saudi Arabia and the UAE, may ramp up production to stabilize supply. Analysts at Goldman Sachs believe that if Iranian exports fall by 1.76 million barrels per day, OPEC+ might offset half of the shortfall, capping Brent crude around $90 temporarily.

However, that assumes the conflict doesn’t spill over or result in long-term infrastructure damage.

Emergency Oil Reserves

Another safety net lies in emergency oil stockpiles. The U.S. and IEA member countries have over 1.2 billion barrels in reserves. While the IEA has not yet committed to releasing these reserves, the signal is clear: they’re ready if the situation deteriorates further.

Former President Joe Biden made aggressive use of the Strategic Petroleum Reserve (SPR) during the Ukraine crisis, and similar measures may be considered again by the current administration, especially if public pressure builds.

Outlook: Will We See $100 Oil Again?

Goldman Sachs maintains a cautious view, suggesting a return to $100 oil is unlikely without a prolonged and severe supply disruption. Still, even temporary volatility can significantly impact inflation, monetary policy, and investor behavior.

For now, markets are watching closely. If Iran limits its retaliation to Israeli military targets, the effect on oil markets could be modest and short-lived. But if tankers or infrastructure are targeted, the world could be facing another major energy shock.

Key Takeaways for Investors

• Gas Prices Are Likely to Rise: Expect moderate increases at the pump in the short term.

• Monitor the Strait of Hormuz: This remains the biggest risk factor for oil supply.

• Watch for Government and OPEC Actions: These could stabilize the market—or amplify it.

• Diversify and Hedge: In uncertain times, balancing energy exposure and safe-haven assets is crucial.