The U.S. and Israel’s attacks on Iran have sent oil and gas prices soaring. That could be a boon to cheap, clean technologies like electric vehicles, solar power, and wind – at least in the long run. But in the short run, the outlook is more complicated.
Why is the conflict causing oil and gas prices to spike?
Iran began restricting ship traffic through the Strait of Hormuz after the U.S. and Israel attacked Iran on Feb. 28, 2026. The strait is the narrow passage, about 20 to 40 miles wide, through which ships must navigate from the Persian Gulf to reach the Arabian Sea and global shipping routes.
Behind the strait lie five of the world’s 10 biggest oil-producing countries: Saudi Arabia, Iraq, the United Arab Emirates, Iran, and Kuwait. Despite efforts to shift some of these countries’ oil exports through pipelines and to allow Iran’s own oil tankers safe passage, International Energy Agency executive director Fatih Birol estimated that the war has caused the global oil supply to drop by more than 10%. His organization described it as “the largest supply disruption in the history of the global oil market.”
As a result, global oil prices have risen by $40 per barrel since the start of the conflict. Gasoline prices have followed suit, with the U.S. national average surpassing $4 per gallon on the final day of March, up more than a dollar from pre-conflict prices. It’s the third spike in fossil fuel prices in just the past five years, following COVID supply chain disruptions in 2021 and Russia’s invasion of Ukraine in 2022.
And fossil fuel prices are likely to rise further. Countries agreed to release 400 million barrels of oil from their strategic reserves, and some oil tankers were already en route to their destinations when the conflict began, but the amount of lost oil production in the Middle East has now surpassed those numbers. Parts of Asia and Africa are beginning to experience fuel shortages, and Europe could follow suit as soon as this month. Meanwhile, the Trump administration has signaled that the end of the conflict is not contingent on reopening the Strait of Hormuz.
Why do oil and gas prices keep spiking every few years?
Oil and natural gas are traded on a global market. Even in the U.S., which produces more oil than it consumes, many refineries need a different kind of oil than is extracted from most domestic oil wells. As a result, when the global oil supply is significantly disrupted by an event like the COVID pandemic, the Russian invasion of Ukraine, the Iran conflict, or even global supplies simply failing to meet rising demand, as happened around 2008, oil prices spike everywhere.
Natural gas prices are less globally uniform. In the U.S., domestic natural gas production exceeds consumption, and the country’s export capacity is limited. Although the U.S. has been rapidly building new natural gas export terminals, export capacity represents about only 20% of domestic production, compared to the over half of U.S. oil production that’s exported. And U.S. liquefied natural gas exports were already at their maximum capacity before the Iran conflict, so the domestic supply and price of natural gas have remained relatively stable.
That hasn’t been the case for regions like Asia and Europe that depend heavily on natural gas supplies originating from the Middle East and Russia.
How will the Iran conflict affect prices?
About 80% of all global energy is supplied by fossil fuels, so when oil and natural gas get more expensive, the price of nearly everything goes up. Isabel Schnabel, a member of the executive board of the European Central Bank, coined the term “fossilflation” to describe this relationship between rising fossil fuel prices and economic inflation.
Products like gasoline, diesel, and nitrogen fertilizer derived from raw fossil fuels are likely to become more expensive. Fertilizer shortages could cause global food prices to increase significantly, and higher costs for diesel, fuel oil, jet fuel, and associated shipping will lead to rising prices for most products.
How much more will prices rise?
The overall economic impact of the conflict depends on how long the Strait of Hormuz remains restricted.
Oil prices through March lingered around $100 per barrel, with investors assuming that the conflict would end quickly. But it’s now been over a month, and the threat of a missile, drone, or mine damaging oil tankers, each worth tens of millions of dollars, continues to prevent them from risking the perilous passage through the Strait of Hormuz.
Had the Strait reopened after three weeks, Goldman Sachs analysts forecast that oil prices would have peaked at $110 per barrel and retreated back to below $70 by June, with average U.S. gasoline prices peaking at $4.36 per gallon in May and then slowly declining. But the conflict has persisted beyond that scenario.
Saudi Arabian officials have estimated that if fossil fuel supply disruptions last until late April, oil prices could jump to $180 per barrel. That would increase average U.S. gasoline prices well above $6 per gallon. Australian global financial services provider Macquarie Group forecast that if the restrictions last through June, oil prices could spike to $200 per barrel, which would drive average U.S. gasoline prices to around $7 per gallon.
“It is clear that restoring production will take time; restoring trust even longer,” wrote Sverre Alvik, vice president and energy transition outlook director for global assurance and risk management company DNV. “It is likely that the world will therefore see elevated oil and gas prices for a long time.”
Just how elevated and for how long depends on when the Strait of Hormuz reopens.
How might the energy crisis affect deployment of renewable energy?
The long history of global fossil fuel instabilities, especially over the past five years, has demonstrated the value of domestic energy security.
“You’d be hard pressed to find 20 consecutive years without some type of energy crisis with ballooning fuel costs,” said Robbie Orvis, senior director of modeling and analysis at Energy Innovation, in an email. He noted that more clean energy deployment would help protect countries against those price spikes.
For example, in Europe, Spain has weathered the conflict with relatively stable power prices, even as those across most of the rest of the continent have soared. That’s in large part because nearly 60% of the country’s electricity is supplied by solar and wind, plus another 20% from nuclear power. Countries around the world are searching for ways to reduce their reliance on imported fossil fuels, given two recent examples that a head of state with a powerful military can suddenly destabilize the global supply and price of these fuels.
But big solar and wind farms are capital-intensive projects, and the vast majority of their lifetime costs are incurred during construction. Financing those high up-front costs requires loans. As a result, the economic viability of solar and wind farms is tightly linked to interest rates.
“We are definitely staring down a period of higher inflation and then likely higher interest rates to tackle the inflation,” Orvis said.
On the other hand, the costs of many competing sources of power have also increased. Not only are natural gas prices soaring, with gas turbines also in short supply, but “capital costs for coal infrastructure, at least that which has pollution controls, are also enormous,” Orvis said.
How will the conflict affect electric vehicles and other clean technologies?
Research has shown that higher gasoline prices result in greater EV adoption. Sales of EVs are already surging in Europe and Asia. Even in the U.S., where EV sales have lagged, interest in EVs is up.
Read: The rest of the world is lapping the U.S. in the EV race
U.S. used EV sales have been low but steadily increasing, and the market is poised to surge. And for good reason: An analysis by Recurrent found that the average used EV in the U.S. is a year newer and has 30,000 fewer miles driven than a used gasoline car at the same price.
In addition to EVs, sales of rooftop solar panels and heat pumps in many countries are on the rise as homeowners look for ways to reduce their exposure to volatile fossil fuel prices.
What does it all mean for the climate?
The conflict itself created about 5 million tons of carbon dioxide pollution in its first two weeks, according to an analysis by the Climate & Community Institute, mostly from the destruction and burning of buildings and fuel facilities. That’s just over 0.01% of global emissions from fossil fuels in 2025. But militaries are a significant contributor to global warming. A 2022 report by the Conflict and Environment Observatory estimated that militaries around the world account for around 2.7 billion tons per year, or 5.5% of global carbon dioxide pollution.
Meanwhile, recent global fossil fuel market disruptions have motivated countries around the world to shore up domestic energy production. That can be a boon for solar and wind farms, nuclear and geothermal power, and also coal, at least in the short-term.
“You are already seeing things like countries relaxing emissions rules to allow for more coal generation (gas-to-coal switching), for example, in Japan, which is heavily reliant on liquefied natural gas, after just a few weeks of the current situation,” Orvis said. “In the near term, expect to see an increase in coal consumption this year, driven by higher gas prices and limited availability of gas.”
But coal remains a relatively expensive option, “so while this provides some insurance against price swings for gas, it does not unlock the same level of financial security that transitioning to clean [energy] offers,” Orvis added.
The conflict will have an inflationary effect, to which central banks often respond by raising interest rates, which will make it more expensive to build new solar and wind farms. But fossil-fueled competition is expected to remain even more expensive and unappealing.
“Higher interest rates will raise capital costs, and diversification takes time, but energy security concerns will ultimately strengthen the pull toward renewables and nuclear,” Alvik wrote.
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