Commercial Energy Costs Rise Due to War In Iran
The war in Iran caused a sharp rise in commercial energy costs in the US and worldwide. The rapid increase in gas prices affects consumers and businesses alike, ratcheting up transportation costs in the near term and pushing long-term inflation forecasts higher than before the conflict began.
The Iran War’s Impact on Energy Prices
Geopolitical conflict is often a devastating contributor to energy volatility, but the conflict in Iran is an almost perfect storm for several reasons.
Strait of Hormuz: The hotly contested shipping route carries roughly 20% of the world’s oil and gas supply each year, and a prolonged closure could take years to recover from.
Regional strikes: Iran has countered US attacks by hitting regional energy infrastructure in Qatar and Kuwait, further damaging production and exportation.
Ukraine: International sanctions against Russia have cut off natural gas supplies to Europe and forced significant sourcing challenges in the Middle East and Asia.
Europe gets roughly 12% of its oil from the Middle East, slightly less than it receives from the US (15%) and Norway (14%). Still, the war has forced Europe to compete with Asia for dwindling oil and natural gas supplies.
While the US is more resilient amid the current crisis, businesses, big and small, have felt the impact of the conflict in several meaningful ways.
Read more: Don’t Let Energy Inefficiency Stifle Growth
The Iran War Energy Shock, By-the-Numbers
Since March, businesses have faced immediate and long-term consequences for the US decision to attack Iran.
Immediate Impacts on Commercial Energy Costs
Fuel prices: Elevated gas prices have hurt businesses and consumers alike. Daily operations for many businesses are more expensive, increasing fleet costs and forcing some to absorb gas-related surcharges for business deliveries. High gas prices have also lowered consumer demand, reducing revenue.
Diesel costs: Supply chain disruptions in the Strait of Hormuz are being exacerbated by elevated diesel prices, which have already increased trucking costs.
Long-term Impacts on Commercial Energy Costs
Material costs: Products and processes reliant on oil are already rising; aluminum prices hit a four-year high, while plastics, fertilizers, and other petroleum-based products are increasing quickly.
The Damage Is Just Beginning
Even as gas prices surpassed $4 a gallon for the first time since 2022, experts believe the worst effects of the war lie ahead of us.
Asia, the region most reliant on the Middle East, felt the impact immediately and was forced to burn more coal, close schools, and take other extreme measures to preserve its shrinking natural gas supply.
Europe is facing its second energy shock in four years. Iran destroyed two of the 14 liquefaction trains that serve the European market, and it will take years to restore that capacity.
The US will feel the effects long-term, notably in a few key areas: natural gas accounts for 70-90% of the cost of ammonia, a key ingredient in fertilizers. That will lead to higher food prices in the months ahead, spurring inflation.
Renewable Energy Is Independence
Renewable energy offers insulation from energy price volatility at the macro, utility, and facility scale. Every business with on-site solar or wind and a robust energy-efficiency investment has a significant advantage over competitors exposed to energy shocks, especially in the near term. Keen Technical Solutions helps forward-thinking businesses make smart, proactive investments in energy security - talk to a Keen energy consultant today to get started.