Why oil prices could stay high even if the Iran conflict ends

The Ongoing Surge in Gas Prices

Gas prices in the United States have seen a daily increase since March 1, marking a significant shift in the energy market. This trend has raised concerns among economists and consumers alike, as the cost of living continues to rise.

Key Insights from Analysts

Goldman Sachs analysts have issued warnings regarding the potential for prolonged high oil prices. They suggest that damage to oil infrastructure and ongoing efforts to refill strategic reserves could keep prices elevated longer than expected. Even if the conflict in Iran subsides, the impact on oil markets may persist.

Market observers are becoming increasingly concerned about the long-term effects of the conflict. Iran’s actions, including targeting infrastructure and halting trade, are aimed at inflicting maximum economic damage. As the war enters its third week, the implications for oil markets and global economies are becoming more apparent.

Goldman Sachs analysts noted that “the risks to oil prices remain skewed to the upside on net both in the near-term and in 2027.” The conflict in Iran could alter oil demand and supply dynamics, potentially keeping prices higher for an extended period. Even if the Strait of Hormuz, a critical chokepoint, reopens next month, the impact on oil prices could be significant.

Impact on the Economy and Consumers

The rising cost of crude oil has far-reaching consequences for the economy and consumers. Crude oil accounts for more than 50% of the cost of gasoline, making it a primary driver of inflation. The national average gas price has risen for 19 consecutive days, now more than 30% higher than before the war. Brent crude, the global oil benchmark, recently traded at $112 a barrel, up 55% since the conflict began.

Why This Matters

Inflation was already a concern before the Middle East conflict caused prices for oil and other key industrial inputs to surge. Economists worry that the war’s inflationary pressure, combined with a frozen labor market, could lead to stagflation—a situation where economic growth is stagnant while inflation rises.

The Trump administration is exploring ways to boost global oil supplies, considering lifting sanctions on Russian oil at sea and possibly doing the same for Iranian oil. The Pentagon has also increased strikes on Iranian naval vessels and drones around the strait, potentially facilitating naval escorts.

Risks to Oil Prices

One of the biggest risks to oil prices is infrastructure damage leading to a prolonged decrease in supply. Countries surrounding the Persian Gulf accounted for about 30% of global oil production last year, but their operations have been significantly disrupted this month by Iranian drone and missile strikes.

Energy infrastructure has become a prime target for both sides of the conflict. Israel bombed Iran’s South Pars gas field, prompting Iran to attack Qatar’s largest LNG export facility. The CEO of QatarEnergy stated that the attack reduced the facility’s export capacity by 17%, with repairs potentially taking up to five years.

Morgan Stanley analysts noted that the attacks on LNG infrastructure have shifted the supply-demand outlook. Before the war, they estimated a global LNG surplus of 8 million tons; after the attacks, they expect a 15 million ton deficit.

Global Efforts to Stabilize Prices

Goldman Sachs suggests that the post-war supply crunch will likely be exacerbated by a global race to replenish depleted oil reserves. The International Energy Agency agreed to release 400 million barrels from their strategic reserves to ease prices. Policymakers may replace these barrels and increase their reserve targets due to the uncertainty of oil supply in the current geopolitical environment.

Factors That Could Lower Prices

Several factors could put downward pressure on oil prices. If geopolitical risks recede, OPEC could activate spare production capacity. In past supply crises, Saudi Arabia and the UAE have increased production enough to offset 70% to 90% of losses within six months. Higher oil prices could also drive a shift toward alternative energy sources or changes in consumer behavior that reduce oil demand over time.

Uncertainty About the Strait of Hormuz

It is not guaranteed that traffic through the Strait of Hormuz will return to normal soon. UBS’s chief investment office warned investors to be cautious about assuming a swift resumption of energy flows, which could only be fully restored through a combination of military and political means.

Long-Term Implications

Many market watchers see little incentive for Iran to back down militarily or compromise politically. Its stockpile of low-cost drones remains capable of damaging critical infrastructure across the region, increasing the cost of war for the U.S. and its Gulf allies.

The efficiency of Iran’s economic warfare is one reason some on Wall Street worry there’s no going back to normal. Mark Malek, chief investment officer at Siebert Financial, stated that “this is not an oil shock, it is a structural shift in how energy risk is priced globally.”