Following strikes on Iran, a major military conflict has erupted in the Middle East that is fundamentally reshaping global energy markets, creating what could be a severe energy crisis.
WTI Crude and Brent have surged to 52 week highs to more than $85 a barrel, increasing roughly 25% since the conflict began. The impact largely stems from the lack of crude flow from the Middle East. Iran's effective closure of the Strait of Hormuz has disrupted approximately 20% of global oil supplies, while also creating inherent dangers for any vessels attempting to travel through the region. In response, President Donald Trump has offered insurance backstops and naval escorts to ensure safe passage for oil tankers and other vessels through the Strait of Hormuz. The President has directed the Development Finance Corporation to provide reasonably priced political risk insurance.
The consequences of the conflict are already hitting American consumers. On Thursday, the nationwide average gasoline price jumped to $3.32 per gallon, up from $2.80 per gallon in January. The sizable jump in gasoline prices may impact whether the Federal Reserve cuts interest rates at upcoming FOMC meetings and the Trump administration's economic messaging ahead of midterm elections.
Sources: AAA, Bloomberg, NPR
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