Middle East Conflict Whipsaws Energy Prices
The Middle East region is a dominant source of the world’s energy supply. The region accounts for roughly 31% of the world’s total crude oil production, according to the U.S. Energy Information Administration. In 2024, its crude oil production reached 30.4 million barrels per day. The Middle East also produces about 17% of the world’s natural gas supply.
Within the region, the crude oil industry is dominated by Saudi Arabia. Trailing only the U.S., Saudi Arabia is the world’s second largest producer of crude oil. Last year, Saudi Arabia delivered 11% of the world’s crude oil output. Saudi Arabia is home to some of the world’s largest known deposits of crude oil. Its main asset is the legendary behemoth Ghawar oilfield, which has an estimated 50 billion barrels of untapped crude oil reserves. Other notable oil-producing nations in the region are Iraq, the United Arab Emirates, Iran and Kuwait. Each respectively delivers three to four percent of the world’s crude oil output.
Most energy products, such as crude oil and natural gas, are global commodities subject to the global forces of supply and demand. As we’ve seen, global economic and geopolitical events can create a lot of volatility in energy prices. The most recent example is the conflict between Israel and Iran which started on June 13.
West Texas Intermediate (WTI) is the benchmark grade of crude oil produced in the U.S. It serves as one of the three main pricing barometers of the global petroleum industry, alongside North Sea Brent and Dubai crude. In the week that followed the start of the conflict, WTI crude oil prices rose by $5.81 per barrel from $68.05 to $73.86, an increase of 9%. But on the Monday after President Trump’s bombing of three of Iran’s nuclear facilities, crude oil surprisingly fell by $9.49 (13%) to just $64.37.
Likewise, the price of natural gas quickly rose $0.50 from $3.49 to $3.90, an increase of 14%. After Iran’s nuclear facilities were bombed, its price fell by 18% to $3.26. This means that both crude oil and natural gas are actually cheaper now than at the start of the conflict.
The impact of energy prices on the U.S. economy is substantial. The U.S. is the world’s largest consumer of crude oil. Each year, America accounts for roughly 20% of the world’s total crude oil consumption. In 2024, America consumed 20.3 million barrels of crude oil each day. Crude oil is the No. 1 source of America’s energy. On average, crude oil supplies 38% of our nation’s total energy consumption.
As the price of crude oil rises, so do many of its distillate products. From a barrel of crude oil we get gasoline, diesel fuel, jet fuel, kerosene and heating oil. It’s used in the production of plastics, lubricants, fertilizers, rubber and synthetic textiles, among many others.
The U.S. is also the world’s largest consumer of natural gas. Each year, the U.S. accounts for 21% of the world’s total natural gas consumption. Natural gas is our No. 1 source of electricity. It accounts for 43% of our total electricity production. In the summer, it’s electricity that primarily powers our air conditioners. In the wintertime, natural gas is used as a major source heat – whether it’s to heat our home, water heating or in cooking – in 61% of all U.S. homes.
In short, the energy industry doesn’t exist in some type of singular bubble. Nearly everything we do or purchase involves some aspect of energy use. On the commercial side, rising energy costs increase the cost of manufacturing and production, transportation, warehousing and operating costs. In our homes, higher energy costs make the products we buy and the services we use more expensive.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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