A prolonged conflict may affect energy prices and production in the US.
Fuel prices spiked after the Trump administration initiated strikes against Iran on Saturday, raising concerns about higher energy costs for Americans, increased stress on power grids, and potential boosts in US oil and gas production. If the conflict continues, it could align with Donald Trump’s “drill, baby, drill” strategy but doesn’t necessarily shield Americans from higher energy costs.
It’s too early to determine the war’s potential impact, and the rise in global oil prices may be temporary. However, ongoing conflict and disruptions in Middle Eastern oil and gas production could alter global fossil fuel dynamics.
Extended military activity could shift US fossil fuel production forecasts. The US, the world’s leading oil and gas producer, might face pressure from rising energy costs as demand increases.
“A high oil price scenario, encouraging more oil production, aligns with the ‘drill, baby, drill’ mantra, but also indicates more expensive energy and gasoline prices,” says Reed Blakemore from the Atlantic Council’s Global Energy Center.
“The impact of the war with Iran on US energy affordability and production is critical, especially looking toward upcoming midterm elections,” Blakemore adds. Rising electricity costs, amid the surge in energy-demanding data centers, are already a significant issue in local US elections.
The international crude oil price rose to $84 a barrel by Tuesday, marking the highest level since July 2024, raising US gasoline prices by 10 cents to an average of $3.11 a gallon. Liquefied natural gas (LNG) prices surged 45 percent in Asia and 30 percent in Europe.
Attention has turned to the Strait of Hormuz, bordering Iran, the UAE, and Oman, where a significant portion of global petroleum consumption and LNG trade occurs. Transport halted this week as the Iranian Revolutionary Guard reportedly threatened ships, prompting changes or cancellations in shipping insurance. The Trump administration currently plans to provide naval escorts and risk insurance for vessels navigating the strait.
“How much oil continues to flow? That’s the key question now,” says Mohith Velamala, a downstream oil and chemicals specialist at BloombergNEF.
The US is somewhat insulated because it produces substantial oil and gas, unlike countries more reliant on Middle Eastern fossil fuels, including Qatar, where energy targets have been targeted by Iran. Rising oil prices could encourage more US production, a Trump administration goal to achieve “American energy dominance.”
Despite Trump’s focus on the fossil fuel industry, production forecasts remain mostly unchanged. Before the US strikes against Iran, a 2.5 percent increase in US oil production by 2030 was predicted, owing to a global oil supply glut. War escalation might reverse this trend.
It’s still uncertain how events will unfold. An excess oil supply has dampened the impact on markets, and price increases might be temporary if hostilities diminish and the Strait of Hormuz reopens. US fossil fuel companies are likely to decide on output increases based on persistent market changes, not isolated geopolitical incidents. Despite recent events, the Trump administration reportedly sees no immediate need to use the strategic petroleum reserve.
The situation could change if hostilities last beyond four to five weeks, an option Trump highlighted. Prolonged conflict could lead to increased production discussions as markets trend toward supply constraints. Boosting production offers the US more flexibility during national security risks with related energy challenges, Blakemore emphasizes, potentially softening Americans’ economic strain from war.
If the situation worsens, natural gas prices might rise, affecting US utility bills. As a leading LNG exporter, the US might expand exports if Qatar’s flow declines, possibly affecting domestic supplies and increasing electricity costs.
Extreme scenarios with prolonged Strait of Hormuz disruptions, removing Qatari LNG from availability, are not imminent, Blakemore suggests. Next week might offer more clarity on the conflict’s progression and energy implications.
The post-Russia-Ukraine conflict scenario saw a similar situation, influencing US and European energy prices, driven by prolonged conflict, sanctions, and increased US LNG exports to the EU and UK, but structural market changes remain absent soon after Iran hostilities began.
The current crisis highlights fossil fuel dependence’s instability and risk, says Lorne Stockman from Oil Change International. The existing US energy affordability crisis with rising gas and electricity prices could worsen if Gulf tensions persist.
Prolonged conflict could support arguments for a diversified energy mix, including renewables and nuclear, to strengthen energy security, Blakemore notes. Yet Trump remains focused on enhancing fossil fuel usage, rolling back wind and solar tax incentives. Federal fossil fuel subsidies approach $35 billion annually, according to Oil Change International.