Saudi oil officials said prices could soar past $180 a barrel if severe supply disruptions from the war in Iran last past April – potentially hammering foreign economies and the US as gasoline costs jump at the pumps.
While it would mean big profits for a kingdom that leans heavily on oil revenues, it could also lead global consumers to slash oil use or trigger a recession, and there are also fears that it would cast Saudi Arabia as the profiteer of a war it didn’t start, officials told the Wall Street Journal.
Brent crude reached $103 Friday as Iran’s blockade of the Strait of Hormuz disrupted the supply of millions of barrels, and attacks on critical Middle East energy infrastructure threatened to keep prices elevated for longer even if the conflict ends soon.
US crude oil has eased away from Brent a bit this week, landing at $95 a barrel Friday, after the Trump administration announced a temporary pause on Russian energy sanctions, discussed possibly lifting penalties on Iranian oil and weighed another release of reserves.
The US is the largest oil producer in the world, but it’s still vulnerable to global energy shocks – and a prolonged Middle East conflict could push Brent above its all-time high of $147, set in 2008, Goldman Sachs analysts warned in a note Thursday.
“The persistence of several prior large supply shocks underscores the risk that oil prices may stay above $100 for longer in risk scenarios with lengthier disruptions and large persistent supply losses,” the analysts wrote.
After striking Iran’s South Pars gas field, Israeli Prime Minister Benjamin Netanyahu agreed to Trump’s demand not to repeat attacks – as Tehran retaliated with strikes on key energy facilities in Qatar and Saudi Arabia, and ramped up attacks on ships in the Gulf.
Energy Secretary Chris Wright has said there is “a very good chance” that gasoline prices – which hit $3.91 on Friday, per AAA – will be back below $3 by the summer, and oil experts have said that prices tend to normalize quickly after short-term disruptions.
But Wright also warned there are “no guarantees in wars at all,” as analysts have said a longer conflict and severe damage from attacks on energy hubs could extend supply disruptions.
The head of the International Energy Agency warned that it could take six months or longer to fully restore oil and gas flows through the Gulf, according to the Financial Times.
“The market isn’t acting like this is an end-of-March thing any more,” Rebecca Babin, senior energy trader for CIBC Private Wealth, told the Journal.
“I don’t think $150 is out of the question in another month…You start talking about June, I’ll give you $180.”
An Iranian military spokesperson has warned the cost of oil could reach $200 a barrel if the US and Israel’s war with Tehran rages on, though Wright has said Americans should “pay no attention to what Iran says.”
There is currently no clear end in sight to the war, as the Strait of Hormuz has been effectively closed for 20 days – causing the largest-ever energy supply disruption.
The International Energy Agency has urged households, businesses and governments to start working from home, carpooling and flying less often to curb soaring prices.
National average gasoline prices at $3.91 a gallon are nearly a full dollar higher than one month ago, and demand tends to start nosediving when prices break past the $3.50 mark, James West of Melius Research told the Journal.
Analysts have warned the energy shock could ripple across consumer prices and reheat inflation, while also possibly causing an economic contraction as Americans are forced to spend more on gasoline and cut back elsewhere.
The Federal Reserve on Wednesday kept interest rates steady in the 3.5% to 3.75% range due to uncertainty around the war.
Fed Chair Jerome Powell – whose term ends in May – warned that higher energy costs could send inflation higher.
“The net of the oil shock will still be some downward pressure on spending and employment and upward pressure on inflation,” Powell said.
