As global tensions escalate and reports emerge of bombings in Iran, it's natural for U.S. businesses to ask: How will this impact my business? We’ll break down everything you need to know below.
Despite the alarming headlines, the direct impact on natural gas markets remains muted for now. Due to longstanding sanctions, Iran doesn’t sell natural gas into most of the world's markets. That means your energy supply isn’t directly linked to Iran’s output.
However, Iran’s geographical position is key. The country is located near one of the most strategically sensitive regions for global oil and gas called the Strait of Hormuz. The strait is a channel between Iran and the northern border of Oman which links the Persian Gulf with the Arabian Sea. The Strait of Hormuz is one of the busiest shipping routes in the world with about 20% of global oil and gas being transported through the narrow channel.
With a substantial portion of the world’s energy shipping routes running through these waters, the real risk isn’t about production, it's about transit.
In the event that the channel is closed, only about 5% of U.S. production would be affected. Currently, energy experts are speculating that Iran is unlikely to close the Strait of Hormuz, which the country has partial control over. Since so much other production travels through the strait, international prices would certainly rise and consumers will feel that effect stateside.
If vital shipping lanes are compromised, we can expect pricing volatility to follow, especially in oil markets, which can bleed into natural gas pricing as well.
Right now, the market has yet to make a serious jump. Prices are stable, with no panic pricing taking effect yet. In fact, gas prices at the pump are lower on average than they were a year ago at $3.22 a gallon compared to $3.45.
Since a ceasefire was called earlier this week, prices might dip modestly, but if conflict incites again, the upward pressure on pricing could be far more severe. In short, it’s a risk-heavy environment that you should take into account when analyzing your current energy situation.
Ongoing geopolitical crises usually have a large impact on the economy. In the case of the current conflict in Iran, closing the Strait of Hormuz, which Iran has partial control of, can limit the transportation of global oil and gas resulting in higher prices.
This situation is something to think about when making energy decisions.