The Israel-Hamas conflict has raised concerns about the possibility of higher gas prices for motorists. As the conflict escalated over the weekend, the price of oil in the global market surged by more than 5 percent.
This increase, with West Texas Intermediate crude surpassing $87 a barrel, has prompted worries about its impact on gas prices in the United States.
Geopolitical Tensions and Oil Prices
While Israel and Palestine are not significant oil producers themselves, the repercussions of the conflict extend beyond their borders.
The ongoing fighting, which has resulted in the deaths of over 1,100 people, could exacerbate tensions between the United States and Iran.
Reports suggest that Iran may have played a role in the attack on Israel with Hamas. Iran is a major supplier of oil to the United States, and any potential sanctions could disrupt oil shipments.
Gas Prices and Historical Context
Gas prices in the United States had reached a record high of $5.02 per gallon in June 2022 following Russia’s invasion of Ukraine and subsequent Western sanctions.
However, in the past week, gas prices had fallen to an average of $3.74 per gallon, providing some relief to consumers.
As of Monday, gas prices averaged $3.70 per gallon, according to AAA.
It typically takes more than a week for changes in oil prices to affect gas prices at the pump, as roughly half of the gas cost comprises the price of refined crude oil.
Potential Impact on Oil Supply and Relations
Market analysts, like Craig Erlam from OANDA, suggest that if the focus shifts to Iran due to the conflict, there is a possibility of stricter sanctions that could lead to supply constraints and market tightening.
Additionally, the conflict could disrupt the Biden administration’s efforts to improve relations between Israel and Saudi Arabia, which could impact Saudi Arabia’s commitment to increasing oil production.
Israel’s Oil Production and Response
While Israel’s oil production is limited on a global scale, it has become a more prominent producer in recent years, even exporting for the first time in 2023.
On Monday, Chevron announced the shutdown of the Tamar offshore oil field, located near Gaza, due to safety concerns following the conflict’s escalation.
However, Israel’s largest offshore gas field, Leviathan, continues to operate normally, according to Chevron.
The Israel-Hamas conflict has introduced uncertainties in the oil market, with rising prices and concerns about potential disruptions to oil supply.
While gas prices in the United States have seen some relief recently, the conflict’s long-term implications on oil prices and global oil dynamics remain uncertain.