The Iran war entered a dangerous new phase on Wednesday when Israeli forces, in coordination with the United States, struck the South Pars gas field, the world’s largest natural gas reserve. The attack marks the first time since the conflict began on February 28 that upstream oil and gas infrastructure inside Iran, rather than Gulf shipping, has been directly targeted.
Brent crude surged more than 5% following the news, briefly reaching $111.45 a barrel, extending what has already been one of the most rapid and sustained oil price rallies in decades. For context, Brent was sitting around $70 a barrel just three weeks ago. The roughly 80% climb since hostilities began has been driven primarily by the near-total shutdown of tanker traffic through the Strait of Hormuz, which normally handles about 20% of global oil and gas flows.
Iran’s response to the South Pars strikes was to publicly list energy infrastructure it planned to target in retaliation, naming specific facilities in Saudi Arabia, the UAE, and Qatar, including Saudi Aramco’s Samref refinery, the Jubail petrochemical complex, and the Al Hosn gas field in Abu Dhabi. Qatar’s foreign ministry called the strikes “a dangerous and irresponsible step,” reflecting the risk that the conflict now poses to the Gulf’s broader energy architecture.
For American drivers, the consequences are already visible at the pump. The national average for gasoline reached $3.84 per gallon on Wednesday according to AAA, up 92 cents from a month ago and the highest since September 2023. Diesel has crossed $5 a gallon for the first time since 2022, with some western states seeing prices above $6.
International reserves releases have so far done little to contain prices. The International Energy Agency announced what it described as the largest emergency reserve release in its history, 400 million barrels, and the U.S. has committed to drawing down 172 million barrels from its Strategic Petroleum Reserve over 120 days. The scale of the supply disruption appears to be outrunning those remedies.
The situation in Asian energy markets is arguably even more acute. Dubai crude, the pricing benchmark for buyers in Asia, hit an all-time high above $150 a barrel last week, creating an unprecedented spread of more than $50 compared to WTI crude, which normally trades within $5 to $8 of its Asian equivalent. Physical crude in Asia is also commanding a nearly $40 premium over paper futures, signaling a genuine shortage of actual barrels rather than just speculative pressure.
Commodities analyst Rory Johnston noted that Asian refiners are already sourcing oil from much further afield than usual, and warned that regional scarcity could become a global problem the longer the Strait remains blocked. The IEA’s emergency reserves, while historically large in absolute terms, represent only a fraction of the daily global demand being disrupted.
Treasury Secretary Scott Bessent told CNBC earlier this week that the U.S. is allowing Iranian oil tankers to transit the Strait to help supply global markets, a pragmatic concession to the scale of the energy shock. President Trump has also signaled he is considering loosening Jones Act restrictions and engaging allies to form tanker escort coalitions, though none of those measures have yet moved into operation.
The stakes extend beyond oil pricing into broader inflation risk, and the Fed’s updated projections reflect that concern directly. Wednesday’s rate decision acknowledged that “the implications of developments in the Middle East for the U.S. economy are uncertain,” language that will almost certainly appear in every policy statement until the conflict ends or a meaningful ceasefire is established.