Israeli strike on Iran could raise gas prices to $6 per gallon, analysts say

An Israeli military strike against Iranian nuclear enrichment sites would spike gas prices to between $5 and $6 per gallon, according to market analysts.

This would be well beyond the record highs hit in 2008, when nationwide average retail prices hit $4.11 per gallon, analysts say.

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“I think you will see $5- and $6-a-gallon gas,” said Andrew Lipow, president of Lipow Oil Associates.

Other analysts agreed that airstrikes would cause a spike in global crude oil prices, and a corresponding jump in U.S. gasoline prices that are currently averaging $3.82 per gallon. But some declined to predict how large that spike would be.

The pain at the pump has created election-year political jeopardy for President Obama, who on Thursday was set to offer his fourth recent speech on his administration’s energy policies. Congressional Republicans and Obama’s rivals in the GOP presidential primary have sought to pin blame for the rising prices on Obama’s policies.

All of the analysts questioned by The Hill said there are a number of variables, such as whether Iran seeks to block or attack tankers in the Strait of Hormuz, a key shipping lane for Middle Eastern oil supplies.

Other fallout could include major supply disruptions from Iran as a result of military action, including damage to Iran’s oil and related infrastructure that hinders exports.

“You would almost inevitably see some disruption, even if it is only a few days in terms of export capability,” said Suzanne Maloney, an Iran expert with the Brookings Institution.

Israel has not ruled out airstrikes to set back Iran’s nuclear program, which Western powers argue is geared toward weapons production while Iranian officials insist it is for peaceful purposes.

Obama and his administration have sought to get Israel to wait and allow time for economic sanctions to punish Iran. But Obama also has not ruled out any options for preventing Iran from gaining nuclear weapons.

The United States does not import oil from Iran, but a supply disruption would affect U.S. gasoline prices because they’re tethered to crude prices set on global markets.

The wide-ranging potential effects of a strike could also include Iran, which is OPEC’s second-largest oil producer, willingly holding supplies off the market, and even attacks by Iranian proxies against oil production sites in other nations, experts say.

“The key of course would be the Iranian response,” said Guy Caruso, a senior adviser with the nonpartisan Center for Strategic and International Studies.

Caruso said the “most likely” scenario is an attack against Israel by Hezbollah from bases in Lebanon, which he estimates would have “relatively little” impact on oil prices, perhaps $5-$10 per barrel.

Sabotage against oil facilities in Iraq or Saudi Arabia is a lower probability but would have a bigger effect, said Caruso, who headed the independent federal Energy Information Administration during the George W. Bush administration.

Caruso estimated that such sabotage would send crude oil prices up by $10-$20 per barrel, with a corresponding increase in gasoline prices of 25-50 cents per gallon in the short term.

Damage to Saudi Arabia would be extremely worrisome to oil markets because the kingdom is OPEC’s dominant oil producer and the only member with the ability to substantially ramp up production to offset losses elsewhere.

Experts say that an Israeli attack would instantly drive up prices as traders would react to the potential for major supply disruptions.

“You would get a quick spike, and then markets would wait to see what would happen,” said Michael Lynch, president of Strategic Energy and Economic Research Inc.

He predicted that an Israeli strike would quickly send crude oil prices up by 10 percent to 20 percent over two days as “everyone on Wall Street goes nuts,” and from there it would depend on what comes next.

Lynch said an Iranian missile attack on oil tankers in the Strait of Hormuz is the most aggressive potential response, and forecasted that it would prompt a 50 percent jump in crude prices.

“I am not one of those who says we are going to hit $5, except briefly in the worst-case situation,” Lynch said.

But Maloney, the Brookings expert who is also a former State Department policy adviser, said military action against Iran would have a sustained effect on oil markets.

“We are looking at some immediate implications as a result of a strike, and then very possibly a kind of sustained series of crises over weeks and months ... that would make it very difficult to control the volatility in the oil market,” she said.

“It would be a sustained period of pressure on oil prices and a very difficult time keeping the price at the pump down.”