President Donald Trump says rising gasoline prices are a "very small price to pay" as the war with Iran is shaking up global energy markets, sending crude oil prices above $100 a barrel for the first time since Russia's invasion of Ukraine in 2022.
The conflict has severely disrupted the flow of oil through the Strait of Hormuz, a key global trade route, driving up prices at the US gas pump and threatening to damage Trump's economic agenda ahead of November's midterm elections.
In the wave of retaliatory attacks that Iran has launched across the Middle East, effectively closing the Strait of Hormuz – threatening to shoot down any ship that tries to pass through – is a powerful weapon.
Shipping through the strait, a narrow waterway through which a fifth of the world's oil supply passes, has been almost completely halted. The strait is the only sea passage from the Persian Gulf to the open ocean.
Since the US-Israeli attacks on February 28, commercial ships passing through the strait have been attacked, while wider airstrikes between the US, Israel and Iran also pose a threat to ships passing through it. Ships linked to Iran were the only commercial vessels to pass through the strait over the weekend, according to Bloomberg. The last non-Iranian commercial ship to pass through Hormuz was a Chinese-owned freighter on Saturday morning.
“In the entire recorded history of the strait, it has never, ever been closed,” JPMorgan Chase analyst Natasha Kaneva told the Wall Street Journal. “To me, it wasn’t just the worst-case scenario. It was an unimaginable scenario.”
Last June, during the 12-day war between Israel and Iran, Iran also threatened to close the strait in retaliation for US-Israeli attacks on its nuclear facilities. At the time, Peter McNally, Global Sector Leader at research firm Third Bridge, told TIME: “The world cannot replace all the oil flowing through the Strait of Hormuz, which remains the most critical bottleneck in global crude markets.”
More than 14 million barrels of crude oil passed through the strait in the days before its closure. Saudi Arabia has diverted oil shipments to the Red Sea at record levels, although the route could also face challenges from potential attacks by Yemen's Iran-aligned Houthis, who have targeted shipping in the area since 2023 in protest of Israel's bombing of Gaza.
With the strait virtually closed, some oil refineries are scaling back operations. Kuwait, the United Arab Emirates and Iraq have cut crude oil production, while storage tanks have been filled with reserved crude.
The soaring gas prices may not be as temporary as Trump and administration officials have assured Americans they will be. Oil market analysts have suggested that even if the war ended today, it could take two weeks to restore shipping traffic in the Persian Gulf to pre-war levels and two months to restore oil production to normal levels.
Energy facilities in the Middle East have also faced attacks, directly threatening crude oil supplies. Oil refineries in Saudi Arabia, Qatar, Bahrain and Kuwait have blamed Iran for attacks over the past week. On Saturday, Israel carried out strikes on four oil storage facilities and an oil production transfer center in Iran, according to Iranian state media. Iran exports an average of 1.6 million barrels of crude oil per day, less than many of its Gulf neighbors.
On Sunday, Iran's Revolutionary Guard Corps threatened retaliatory attacks on energy sites across the region. "If you can tolerate oil at a price higher than $200 per barrel, continue this game," the IRGC warned the US and Israel.
Qatar's Energy Minister Saad al-Kaabi told the Financial Times on Friday that Gulf producers would be forced to halt exports "within days," which would push oil prices even higher. "We expect that all those who have not requested force majeure will do so within a few days, if this continues," Al-Kaabi said.
On Monday, after Iran proclaimed its new Supreme Leader, Bahrain's state oil company declared force majeure, which releases it from its contractual obligations due to extraordinary circumstances.
Although China was previously better able to deal with energy disruptions in the region, including obtaining assurances from the Houthis in 2024 that they would not target Chinese ships in the Red Sea, Beijing appears as shaken as the rest of the world. The Chinese government instructed its oil refiners to halt fuel exports last week, prioritizing domestic needs amid fears of a deepening global energy crisis.
Already rising oil prices across the U.S. could rise even further, according to Patrick De Haan, an oil analyst. A second wave of price increases is expected in several Republican states that use price cycle systems, De Haan said, such as Michigan, Indiana, Ohio, Kentucky, Texas and Florida.
Despite assurances from the Trump Administration that the war will end within weeks, the escalating conflict, skepticism about the U.S. plan and Iran's apparent lack of willingness to negotiate a ceasefire have "forced traders to assess the possibility of a broader conflict," De Haan wrote in a post on X.
White House spokesman Taylor Rogers previously told TIME magazine that Trump has "a strong plan to keep the energy market stable long before Operation Epic Fury begins and that they will continue to consider all credible options and implement them when appropriate."
Volatility in energy markets is also weighing on financial markets and unnerving investors. While crude oil prices rose, stock markets across Asia and the rest of the world fell, with South Korea’s Kospi and Japan’s Nikkei benchmarks both falling sharply on Monday. If supply disruptions around the Gulf continue, the current surge in oil prices could be more sustained than the surge that followed Russia’s invasion of Ukraine. Energy analysts say the prolonged turmoil could constitute one of the worst sustained energy crises since the 1970s, when Arab oil embargoes and the 1979 Iranian Revolution hampered global exports, sent crude prices soaring and plunged Western economies into recession.
