The escalating conflict between the United States, Israel, and Iran has intensified volatility in the energy and stock markets. Oil prices surged from around $65 per barrel before the war to a high of $119 on March 9, before settling around $100 currently. If Middle East oil supplies continue to be disrupted, it is expected to lead to an increase in gasoline prices in the United States.
Energy analysts suggest that in the coming days and weeks, it will be difficult for oil-producing countries outside the Gulf of Mexico to quickly make up for the supply shortages, reversing the trend of rising oil prices. However, if oil prices remain high for an extended period, more oil production from the United States and South America may come online to fill the gap, albeit requiring some time.
Looking ahead, as countries seek ways to navigate the long-standing turmoil in the Middle East, there may be significant shifts in the production and distribution patterns in the global energy market. This could present opportunities for oil and gas producers in the United States and South America to strengthen their positions as key suppliers in the global energy market. Experts suggest that significant changes may occur in global energy production and distribution in the long term.
Before the Iran war disrupted shipping in the Persian Gulf, approximately 20% of the world’s oil passed through the Strait of Hormuz. This 21-mile wide strait is considered one of the most critical chokepoints on Earth by analysts. Despite the diminished status of the Middle East, it still remains an important supplier of world energy, with most of the oil passing through the Hormuz strait flowing to countries like China, India, Japan, and South Korea.
As long as Iran is able to continue using its remaining arsenal of missiles, drones, and naval mines to disrupt Gulf shipping, energy analysts predict that the market will remain under the influence of developments in the conflict. Recent attacks by Iran on ships passing through the Gulf have almost paralyzed shipping, with approximately 400 oil tankers currently stuck in the Gulf, unwilling to risk passing through the Strait of Hormuz.
In the short term, the oil market is likely to be dominated by risk premiums associated with the safety of shipping and military developments in the Gulf region. According to Peter Earle, Director of Economic and Economic Freedom at the American Institute for Economic Research in Massachusetts, if crude oil prices remain in the range of $100 to $120 per barrel or higher, with wholesale cost increases transmitting to the retail market, gasoline prices in the United States may significantly rise within weeks.
Earle explains that for every $10 increase in oil prices, gasoline prices typically rise by about 25 cents per gallon at gas stations. However, recent releases of strategic oil reserves, along with alternative distribution routes and incremental production increases from suppliers outside the Gulf, could help stabilize oil prices if the conflict does not escalate further.
Efforts to address the disruption in shipping in the Gulf region have shown limited results in the short term. While oil pipelines built by Saudi Arabia and the United Arab Emirates provide an alternative route bypassing the strait, their capacity is limited.
Caleb Jasso, Senior Policy Advisor at the Institute for Energy Research in Washington, highlights that the East–West oil pipeline in Saudi Arabia extends from the Persian Gulf to the Red Sea and can transport up to 7 million barrels of oil per day. However, they have not tested sustained transportation for long periods, so they may be pushing their capacity to the limit.
He notes that the Habshan-Fujairah oil pipeline in the United Arab Emirates bypasses the strait and leads to the Gulf of Oman, where an additional 2 million barrels of crude oil can be transported daily. Nevertheless, compared to the usual 20 million barrels of crude oil passing through the strait daily, these pipelines serve more as a relief rather than a complete shift in total transport volume.
The risk of attacks in the Gulf region has led insurance companies to either cancel or raise shipping insurance rates. The government led by U.S. President Donald Trump has promised military escorts and insurance guarantees for oil tankers, but these measures are still in progress.
In response to supply shortages, other measures include tapping into strategic oil reserves. On March 11, the International Energy Agency based in Paris announced that it would release 400 million barrels of oil from reserves. Compared to the oil released in response to the energy price hikes following Russia’s invasion of Ukraine in 2022, this release is more than double, equivalent to about 20 days of normal shipping in the Persian Gulf.
Established in 1974 to stabilize markets following oil embargoes by Arab nations, the International Energy Agency’s member countries include the United States, Canada, Mexico, Japan, South Korea, Australia, and most European countries.
Some hope for an increase in production from the United States, but analysts point out that this will take time. Steve Milloy, Senior Researcher at the Energy and Environment Legal Institute and former advisor to the Trump administration, notes that U.S. oil companies cannot significantly boost production in the short term to prevent temporary increases in gasoline prices.
“Our production is at an all-time high, but it only meets about two-thirds of our daily needs. Perhaps we could increase production in the future, but that will take time,” said Milloy.
Due to the shale gas revolution, the United States has become the largest producer of oil and natural gas in the world. However, between 2014 and 2016, international oil prices dropped from $100 to $50 per barrel, leading many U.S. companies to suffer from excess capacity, ultimately resulting in over 600 companies filing for bankruptcy.
Alex Stevens, a policy expert at the Energy Research Institute, explains that due to the volatile oil market, many U.S. producers are currently focusing on hedging prices rather than increasing new drilling platforms.
“Most producers in the U.S. need oil prices to stay above $85 per barrel before considering adding drilling platforms,” said Stevens. He notes that new drilling activity in the U.S. is limited, possibly indicating that producers cannot be certain oil prices will remain high in the long term.
Even if U.S. producers want to expand drilling infrastructure to bring wells into production, it will take time.
“Shale oil production cannot significantly increase overnight,” Earle states. “Factors such as drilling plans, labor supply, pipeline transportation capacity, and financing environment mean that oil price increases usually take several months to translate into significant production growth. In the short term, daily production from U.S. producers may increase by a few hundred thousand barrels, but compared to the approximately 20 million barrels of crude oil transported through the Strait of Hormuz daily, this is only a small fraction.”
South American countries like Venezuela, Guyana, Argentina, Brazil, and Colombia also have the potential to increase oil production. Venezuela has the world’s largest proven oil reserves. However, due to decades of mismanagement under socialist rule and neglect, Venezuela’s oil production capacity is severely constrained.
“Venezuela’s current production is only a small fraction of what it was twenty years ago, and restoring production requires significant investment, technical expertise, and operational time,” Earle says. “Even under optimistic circumstances, Venezuela’s production can only gradually increase. Perhaps over time, production may increase by a few hundred thousand barrels per day.”
Given these factors, as long as risks in Persian Gulf oil shipping remain high, market volatility and high prices are likely to persist. However, in the long term, increasing energy production outside the Persian Gulf and bringing energy prices down to pre-war levels are still feasible pathways.
Long-term analyses suggest the possibility of shifting the focus of global oil production and distribution away from the Middle East. Currently, the vast majority of U.S. oil comes from domestic sources or the Western Hemisphere. Additionally, under the leadership of the Trump administration, the United States has been striving to further solidify its energy security and promote energy exports.
According to data from the American Fuel and Petrochemical Manufacturers, 60% of current U.S. energy consumption comes from domestic sources, while 70% of imported energy comes from Canada and Mexico. Many energy analysts predict that U.S. producers will play a larger role in supplying both the domestic and global energy markets.
“I believe you will see policy pressures to significantly increase the export capacity of liquefied natural gas and crude oil,” Stevens states.
Experts suggest that South American countries can also play a greater role in oil and gas supply.
Jasso notes, “You will see a global economy that is more inclined to break free from reliance on the Middle East and achieve diversification.” The Strait of Hormuz is a “chokepoint, in any case, Iran always has the ability to cause disruption here.”
Another area where long-term changes may occur is in refining capacity. While the United States is the largest producer of oil and gas, it has not built a large-scale refinery since the 1970s.
Existing American refineries are typically designed for processing heavy crude oil, which comes from countries like Canada, Mexico, and Venezuela. In contrast, shale-produced light low sulfur crude oil is predominantly exported by the United States to other countries because these countries have higher efficiency in refining light low sulfur crude oil compared to heavy crude oil.
“If you rely on other countries’ refinery capacity, that could become a bottleneck; if there is geopolitical conflict, this bottleneck could disrupt the market,” Stevens explains.
Based on this view, on March 10, President Trump announced plans for the first new refinery in the United States in half a century to begin construction in Brownsville, Texas, to process light crude oil.
There is speculation that one of the reasons for the United States taking military action against Iran and Venezuela is that these two countries are important suppliers and customers for China. Whether this is a fundamental reason for starting a war, in terms of its impact on China, it remains a consequence of one of these wars.
“China is the world’s largest oil importer and heavily relies on oil supplies from the Persian Gulf, so any disruption near the Strait of Hormuz will directly affect China’s energy security,” says Earle. “Even if shipping continues, increased insurance, freight costs, and longer shipping routes will likely raise the actual price of oil being sent to Chinese refineries.”
China purchases over 80% of Iran’s oil exports, which account for about 13% of China’s total oil imports. Similarly, China is the largest foreign buyer of Venezuelan crude oil, although Venezuelan oil comprises only about 4% of China’s total oil imports.
Milloy points out, “If the United States can control oil production from Venezuela and Iran, Trump will be the first U.S. president to strategically lead ahead of the CCP. China’s weakness lies in its relatively poor oil resources, and its dependency on global oil production far exceeds that of the United States.”
Iran not only serves as an oil-producing country but also possesses abundant strategic mineral resources such as uranium, copper, gold, titanium, and zinc. Venezuela, on the other hand, has rich deposits of gold, iron ore, bauxite, coal, nickel, and tantalum niobium ores.
Previously, due to sanctions, the CCP could purchase goods from these two countries at discounted prices, but this situation may soon come to an end.
“If the U.S. can control exports from Iran and Venezuela, it will be a significant strategic advantage for the U.S. and could potentially restrict the CCP’s ambitions to invade Taiwan or dominate markets like electric vehicle batteries,” states Milloy.
However, analysts point out that even if these oil supplies are cut off, China has other options.
Jasso states that the loss of supply from Iran and Venezuela will have an impact on the CCP, “but it may not necessarily destroy their economic viability.”
He adds, “It will be a challenge for them, but they are likely to call Putin [Russian President Vladimir Putin] and say, ‘We need more oil,’ and Putin would be more than willing to receive more income from China.”
As mentioned above, please note that this rewritten and translated version is a digest of the original news article.