The impacts an emerging Middle East conflict could have on the domestic energy market are increasingly uncertain, as the United States becomes further enmeshed in the clash, experts said Monday. The U.S. bombed Iran’s nuclear sites on Saturday.
The move came days after Israel attacked Iran while the country was exploring a possible nuclear deal with the U.S. Iran is now considering closing the Strait of Hormuz, a key artery for energy transportation between the Persian Gulf and Gulf of Oman.
Experts say the crisis may have a muted effect on Texas oil producers, though that could change if it becomes a protracted conflict. F. Gregory Gause, professor emeritus of international affairs at Texas A&M University’s Bush School of Government and Public Service, doesn’t believe Iran has the naval capability to close the Strait of Hormuz.
If oil tankers begin avoiding the Strait, which 20% of the world’s oil and natural gas travels through, prices could rise, benefiting Texas producers. Gause said consumers won’t see a change in prices at the pump, but that could change if the conflict continues.
“I think that the bottom line for an American consumer is that this war in the Middle East, including the American involvement in it, has a chance to really disrupt oil production in the Middle East,” Gause said.
Oil prices drop after Iran launches missiles Oil prices dropped Monday afternoon, after Iran launched missiles at a U.S. military base in Qatar. Oil was trading at about $67 a barrel at 4 p.m. on Monday, down from about $74 per barrel on Friday. Ed Hirs, an energy fellow and economics lecturer at the University of Houston, said the market has shown the conflict is a “non-event” for Texas’ energy industry.
So far, the conflict hasn’t generated a price increase that would justify investing the capital to drill new wells. Hirs said the current fundamentals of the energy market argue for a crude oil price between $50 and $55 per barrel.
Oil prices have dropped from roughly $78 per barrel to $67 since President Donald Trump’s inauguration in January. Respondents to the Federal Reserve Bank of Dallas’ most recent energy survey said they anticipate West Texas Intermediate oil prices to be about $68 a barrel by the end of this year. Prices as low as $57 a barrel were seen in April, sparking concerns about the domestic energy industry’s ability to grow.
Oil prices need to hover around $65 a barrel for energy producers to profitably drill new wells, according to another Dallas Fed survey. Texas produces 42% of the country’s crude oil. Todd Staples, president of the Texas Oil and Gas Association, said Monday’s decline in prices proves energy security and national security are linked (a sentiment long echoed by the defense and energy industries).
He said the energy industry is hoping the conflict resolves and trade relations return to normal. “Certainty is paramount,” Staples said. The U.S. isn’t immune to shifts in the global energy market, Staples said, but as one of the world’s top oil producers, the country is somewhat insulated.
“I think with the position that Texas is in we are able to continue to deliver,” Staples said. “I think you’ll need to have some longer trends in terms of this Israel and Iran war today to determine if that will have a long-term impact on production, but we have the capability from both the resources and we have the capabilities from the pipeline system and refining to expand if the market conditions indicate that it should for long-term purposes.”
Manocherh Dorraj, a professor of political science at TCU, said Texas energy producers could benefit in the short term if prices rise, but an increased cost of production in the long term could have negative impacts. Oil may be used as a political tool, Dorraj said. Dorraj said if Iran decides to close the Strait of Hormuz, there would be a major inflationary impact on the global energy market and prices could soar as high as $130 a barrel.
“It has always been one of the last trump cards in the Iranian arsenal, they have never done it before,” Dorraj said. Dorraj said the U.S.’s recent actions show some in the Trump administration are not seeking to de-escalate the conflict.
The Trump administration was aware of Israel’s plans to attack Iran, and the U.S. bombed Iran’s nuclear sites on Saturday. “Trump started the war of choice with Iran, he didn’t have to do what he did,” Dorraj said.
Source: By star-telegram.com