Oil prices jump 11% as US-Iran peace talks falter

A sustained period of high energy prices appears likely as the Iran war’s disruption to global supply continues to ripple through the economy.

Crude oil prices surged more than 11% over the past week as diplomatic efforts to resolve the conflict in the Middle East stalled, raising the prospect of a prolonged supply disruption. Brent crude, the global benchmark, was trading at $106.01 per barrel Friday morning, a gain of $2.34 from the prior day and up 44% since the war began, reflecting the conflict's severe impact on energy markets.

"I think the damage has already been done, in part because there's no going back on oil prices, at least not any time in the near future," Mark Zandi, chief economist at Moody's Analytics, told CBS News. Zandi noted that oil production will take a long time to ramp up to prewar levels because of widespread damage to energy facilities.

The price spike follows an escalation of the conflict that has disrupted traffic through the Strait of Hormuz, a critical chokepoint for global energy through which one-fifth of the world's oil supply normally flows. Compared to one year ago, oil is up more than 59%, though it remains down about 5% from one month ago. Economists now expect inflation to remain elevated through 2026, with the Personal Consumption Expenditures price index potentially hitting 4% by year-end, double the Federal Reserve's target.

The primary concern is that higher energy costs could force consumers to pull back on spending, which accounts for about 70% of U.S. economic activity. EY-Parthenon chief economist Gregory Daco projects the war could drag GDP down by 0.3 percentage points this year, slowing annual growth from 2.1% in 2025 to 1.8%.

Producers Hesitate, Supply Stays Tight

Despite the opportunity for windfall profits, U.S. oil and gas executives have signaled that a significant increase in production is not imminent, citing extreme price volatility and market uncertainty. A recent Dallas Fed survey of executives in the Permian Basin showed 30% expect no change in U.S. oil production this year in response to the war, and only 1% see an increase of more than 1 million barrels per day. That compares to an estimated 14.5 million barrel-per-day drop in Persian Gulf output, according to Goldman Sachs. "Even after nearly a month of oil above $90 per barrel, rig counts declined, signaling little confidence that prices will hold," one executive commented in the survey.

Consumers Feel the Pinch from Pump to Groceries

For most Americans, the impact is most visible at the gas station, where average prices have climbed to $4.06 a gallon, up more than a dollar since the conflict started. While crude oil makes up the majority of the cost, gas prices often rise quickly with oil but fall more slowly, a trend described as “rockets and feathers.” The pain extends beyond the pump, as higher transport costs are expected to increase prices for groceries and other goods. The conflict has also constrained natural gas supplies, a key component in fertilizer production, which could put additional upward pressure on food prices. Covrig Analytics noted the closure of the Strait of Hormuz has already curbed about 6% of the world's sugar trade.

This article is for informational purposes only and does not constitute investment advice.