With gas prices rising, is the Iran conflict to blame?
U.S. – Iran relations haven’t been great over the past year. Sanctions and conflict with oil tankers in the Persian Gulf region have scattered gas-price projections across the board. Tensions reached new levels when the Trump administration launched a drone strike against General Solemani of the Iranian forces. Iran responded with missile attacks on two U.S. bases in Iraq. While further action doesn’t seem likely at present, the current calm is no guarantee. Fears of war may have diminished, but what about the oil market? In this oil check we’ll take a deeper dive into recent events that could result in gas prices rising.
What’s behind this anticipated price increases?
Experts have been anticipating gas prices rising for months. Part of that anticipation was increased oil consumption stemming from new rules requiring ships to use a more environmentally friendly fuel. Then prices spiked over concerns of a disruption in Saudi oil production after its refining facilities were attacked in September. A new round of tensions with Iran has led to the current fear of higher prices.
How will oil production be affected?
It’s a tale as old as time. Disruption occurs in the Middle East and uncertainty abounds in the oil market. Ongoing escalation in the region could easily impact oil production and cause gas prices to spike. But this may not be one of those times. Why not? Well, partly because Iran’s response appears to have been a measure to deescalate. By attacking two areas of U.S. bases free of personnel, Iran was able to look strong in the face of the Trump Administration assassinating one of its top military officials.
Could Iran or its paramilitary groups begin to cause trouble in the area? Japan has already sent naval troops to provide further security to its oil assets and the UK has also increased their military presence in the area. These seem to be more “just in case” measures than guarantees of further trouble, but there’s no certainty on either side. It should be noted that Iran responded to the U.S. action, and further escalation would likely be the result of further retaliation. But there are other, more easily realized forces pushing gas prices higher.
Tariffs Take a Seat
The Trade War with China started by the Trump Administration may be coming to a close as soon as this week. Whether these tariffs had a minimal impact or a larger one than anticipated, the facts remain that less tariffs mean increased industrial production. Higher production means higher output, and increased shipping volumes, which increases the need for fuel. As Q4 saw a slowdown in shipping that offset the anticipated spike in diesel prices, it’s likely that shipping levels will increase over the coming months and start driving all fuel prices up.
Where does that leave us?
Are gas prices rising? Yes, but not for the reason many anticipated when the news of the Iran strike first broke. How much the price will increase and how long that will remain depends largely on the economic and political climate of the coming months, but current projections are optimistic prices will for the most part remain below $3 a gallon.
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