What you should expect to pay for gas as the war with Iran continues

By Chris Isidore, Matt Egan, CNN

(CNN) — The attacks on Iran are already sending gasoline prices higher, and even steeper increases are probably coming soon.

The average US price for a gallon of regular gas stands at just under $3 Monday morning according to AAA’s survey, which was taken at the nation’s gas stations on Sunday. That’s up about 2 cents a gallon from the previous day’s survey and up six cents from a week ago.

Gas last topped $3 a gallon on average in early December, according to AAA.

But world oil markets are on pace to post their biggest one-day gain in years on Monday. It won’t take long for prices at pumps to follow suit.

Independent oil analyst Tom Kloza, an advisor to Gulf Oil, said he expects retail gas prices will be rising 5 to 10 cents a day for at least a little while. Wholesale gasoline prices are up about 4% in global markets early Monday. Diesel futures soared 12%.

“Yesterday, I got a call early in the morning, and there were a number of companies that were raising their wholesale prices for gasoline by 25 cents (a gallon),” Kloza told CNN Sunday. “Clearly, there’s clearly a whiff of panic there. (Wholesalers) are afraid that they’re going to get hit with massive price increases.”

Gasoline prices typically start climbing this time of year because of increased seasonal demand, and the high point for gas prices in recent years has come in mid-April. But war with Iran has accelerated those normal increases, and the impact on prices at pump will be readily apparently in just a matter of days.

Kloza said it’s too soon to tell how high gas prices will rise.

“Where do we stop? Prior to Friday night, I would have said that we would stop at $3.25,” he said. “Now it’s a little bit open ended.”

West Texas Intermediary, the benchmark used for US oil, was up 8%, on pace for the biggest one-day gain since Russia’s invasion of Ukraine in 2022.

That 2022 disruption in global markets lifted the average gasoline price in the United States to a record $5.02 in June of that year, up from $3.53 a gallon just before the invasion.

Kloza doesn’t think gas prices will approach that record even if the war in Iran stretches on. There is enough supply worldwide to stop that from happening, he believes.

“There’s plenty of crude oil out there,” he said.

Strait of Hormuz

A critical factor in the direction of oil prices will be the flow of traffic through the Strait of Hormuz – the narrow channel off Iran’s southern coast through which 20% of the global oil supply moves.

Traffic through the strait is currently at a standstill.

Oil prices could spike further if traffic is at an effective halt in the Strait of Hormuz for a prolonged period of time. Iran has already fired on some ships in the strait.

Iran wouldn’t necessarily have to wage attacks on enough ships to actually make the strait impassable: For example, Danish shipping company Maersk said Sunday it was suspending all vessel crossings in the strait. And maritime insurer Skuld notified clients Sunday that it would be terminating policies that provided coverage from war risks in the area. That could send shipping rates skyrocketing.

“I don’t think Iran can shut down the Strait of Hormuz but insurance companies and vessel operators can,” Kloza said.

Attacks on infrastructure

Kloza said another concern would be if Iran starts to target oil infrastructure of the other Persian Gulf states.

That may have begun to happen already: A fire broke out at the Ras Tanura oil refinery in Saudi Arabia caused by shrapnel from the interception of two Iranian drones on Monday fell on it. The Saudi Energy Ministry said the fire was limited and had been brought under control, but Reuters reported that production at the refinery had been suspended as a precaution.

“You could inflict an awful lot of damage on oil infrastructure with drones, let alone missile capability,” Kloza said.

Qatar’s state-run energy company QatarEnergy, has stopped its production of liquified natural gas, or LNG, following an Iranian attack on its facility in Ras Laffan on Monday, the company said in a statement to CNN. And a major oil refinery in Kuwait was hit by falling shrapnel early Monday, according to state-run Kuwait News Agency.

The price of Dutch natural gas, the European benchmark, surged more than 43% in Monday afternoon trade. Europe and Asia are among the biggest buyers of LNG from Qatar, which is one of the world’s largest exporters of the fuel. But because of an oversupply of LNG in Europe, prices probably won’t reach the extreme highs of 2022, when Europe faced an energy crisis sparked by Russia’s full-scale invasion of Ukraine, said Per Magnus Nysveen, a senior analyst at consultancy Rystad Energy.

The United States and most of Europe have sanctioned Iranian crude for years. China has become Iran’s largest customer by far. But oil trades on a global market, and if China is forced to buy oil elsewhere, it will drive up the price of oil and gasoline around the globe.

The spike in diesel prices could bleed through to American consumers even though few drive diesel powered cars. Trucking companies could start to add fuel surcharges to their rates.

“It’s bad for truckers, railroads and the consumer who depends on these industries to deliver consumer goods,” said oil analyst Andrew Lipow. “It’s really bad for farmers as the spring planting season is about to begin.”

It also will hurt households, primarily in the Northeast, that heat their homes with heating oil, which is essentially the same product as diesel fuel.

Spiking energy prices could damage the political prospects for President Donald Trump and Republicans ahead of the midterm elections. Affordability remains voters’ top concern, and rising gas prices could raise the cost of living for millions of Americans.

Trump knows that: He was bragging about cheap gas prices during his State of the Union address just a week ago.

CNN’s Hanna Ziady contributed to this report.

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