Oil prices increased this week after President Biden suggested Israel may target Iran’s oil infrastructure in retaliation for a missile attack, raising the prospect of pain at the pump for U.S. consumers in the waning days of the presidential campaign.
On Thursday, responding to a question about whether the U.S. would back Israel if it targets Iranian oil facilities, the president responded “we’re discussing that” but added that “there’s nothing going to happen today.” In the hours after the remarks, West Texas Intermediate, the U.S. oil benchmark, spiked 5.5 percent.
Biden was less ambiguous in discouraging an attack on Iranian oil at a White House briefing Friday, saying, “The Israelis have not concluded what they’re going to do in terms of a strike. That’s under discussion. If I were in their shoes I’d be thinking about other alternatives than striking oil fields.”
The Israeli bombardment of Gaza in response to the Oct. 7 attacks has had muted impacts on the oil market in the last year, especially compared to Russia’s 2022 invasion of Ukraine, which sent gas prices to all-time highs.
The conflict in the region has escalated dramatically in recent months, including an Israeli incursion into Lebanon that killed Hezbollah leader Hassan Nasrallah and a retaliatory strike by Iran. If further Israeli actions do impact Iran’s oil production, their effects could be felt in the global oil market — and Americans’ wallets.
Iran produces about 4 million barrels of oil daily, making it the No. 7 producer of any nation worldwide. While the U.S. does not rely on imports from the nation, oil’s status as a global commodity means a shock to Iranian supply still likely would affect American consumers, said Andy Lipow, president of consulting firm Lipow Oil Associates LLC.
“The United States is connected to the global oil market, [and] if that market lost supplies of Iranian oil it affects the consumer because worldwide prices rise and the U.S. has become a major supplier to the world,” he said.
Gas prices in the U.S. remain relatively low, as is typical going into the fall and winter due to lower demand. As of Friday, AAA reported a national average price of $3.182 per gallon, with much of the Midwest and the South below $3.
The president does not directly set gas prices, but as a frequent expense for American consumers, they remain one of the economic indicators that most commonly affect presidential approval ratings.
In late 2021 and particularly after the 2022 invasion of Ukraine, U.S. prices skyrocketed, accelerating the drop in Biden’s already-eroding ratings. Although Republicans have associated Vice President Harris with Biden’s record, she has largely performed better than him in polling since becoming the Democratic presidential nominee, and recent surveys show her significantly narrowing the gap with former President Trump on economic issues, where he far outpaced Biden.
The low pump prices, in combination with a stronger-than-expected September jobs report and the Federal Reserve’s recent moves to cut interest rates, have contributed to positive economic headwinds in recent weeks that Harris has seemed poised to benefit from.
But a sudden gas price shock could throw much of that into doubt.
What comes next for the prices, Lipow said, depends in large part on whether Israel actually carries out an attack on Iranian oil facilities.
“The market is really waiting on headlines out of the Middle East for its next move,” he said.
One possible target if Israel does choose to strike oil infrastructure, he said, could be Kharg Island, from which Iran exports some 1.5 million barrels per day.
“If that were the case, oil prices are likely to rise $5 to $7 a barrel,” Lipow said. “Given recent increases we saw earlier this week this could mean [Americans pay] 20 to 25 cents more for the gasoline that they buy.”
The OPEC+ bloc of oil-producing nations, of which Iran is a member, retains about 6 million barrels per day of spare capacity that would enable them to offset any shortfall in Iranian production, Lipow added. However, he said, “they may decide not to replace, thinking the higher prices are to their benefit.”
Tensions between Iran and Israel have been mounting since the beginning of the Gaza conflict, raising concerns of a wider regional war. In April, Israel struck an Iranian consulate in Syria and killed several senior officials, after which Iran carried out its first direct, nonproxy strikes against its longtime adversary. However, after Israel conducted retaliatory strikes, Iran did not respond directly.
Lipow noted that if no Israeli attacks on Iran’s oil fields materialize in response to Iran’s recent missile attack, the market is likely to return to the status quo in the days ahead.
“If these attacks and counterattacks pass without any impact to oil infrastructure, we’re likely to see the oil market get back its recent gains as the market is oversupplied given the record production we’re seeing out of the United States, Canada and Ghana combined with poorer demand growth out of China,” he said.
