The global price of oil reached $100 a barrel on Wednesday for the first time in months as tensions in the Middle East escalated. That’s nearly 40 percent higher than on the eve of the war in Iran.
The rise reflects investors’ concerns about how long the war, now in its seventh month, will last; tensions have snarled a large chunk of global oil shipments.
Brent crude, the global benchmark for oil prices, briefly surpassed $100 a barrel in July. In the early months of the war, Brent peaked near $120 a barrel. The price of West Texas Intermediate crude, the U.S. benchmark, is up 41 percent since the start of the war, at $95 a barrel.
Crude oil is the primary ingredient for fuels like gasoline and diesel. Rising oil prices have pushed the average price of gasoline in the United States past $4 a gallon, according to the AAA motor club, while diesel this month hit a record high, surpassing its previous peak set four years ago. Diesel is now nearly $6 a gallon, up more than 55 percent since the start of the war.
“The biggest impact of the conflict has been on petroleum products rather than crude oil itself,” Bank of America analysts said in a research note on Tuesday.
Such high fuel costs squeeze businesses and households as the cost of transporting goods, growing crops and driving a car get more and more expensive. Volatile energy prices remain one of the biggest wild cards in monthly inflation reports. The next measure of U.S. inflation is set to be released on Friday.
Since the United States and Israel attacked Iran in late February, oil exports from the Persian Gulf have been greatly curtailed. Iran has used force to keep most ships from passing through the Strait of Hormuz, a narrow waterway between Iran and Oman that before the war carried a fifth of the world’s oil. The U.S. Navy is helping ships navigate the strait, allowing some oil to flow and helping to keep prices from rising more.
But shipping risks in the region remain high. The Iranian-backed Houthi militia in Yemen has restricted tanker traffic at the southern end of the Red Sea, which Saudi Arabia has used as an alternative to the Strait of Hormuz. On Tuesday, Houthi attacks on Saudi Arabia injured dozens of civilians, Saudi officials said. The Saudi energy ministry said attacks on energy facilities had temporarily disrupted operations.
“For now, lower-than-expected supply, declining inventories and geopolitical uncertainty will likely keep oil price risks high in the near term,” the Bank of America analysts said. They added that a cease-fire deal could result in a “swift reversal” but that a broader conflict resulting in major damage to energy infrastructure could push prices as high as $150 a barrel.
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