Oil prices are rising amid the Israel-Hamas war. Here's what it means for U.S. drivers.

Global oil prices are rising following the eruption of violence between Israel and Hamas, sparking fears the turmoil could spread across the Middle East and threaten the world's oil supply. 

Both U.S. and global oil futures traded roughly 4% higher at around $86 a barrel on Monday after Hamas militants attacked a number of Israeli towns over the weekend during a major Jewish holiday. Although crude traded slightly lower early Tuesday, the fighting has raised concerns that oil could cross the $100 per barrel threshold, compared with its current level of about $86, according to S&P Global.

While Israel is a small player in oil production, with just two oil refineries with a capacity of just under 300,000 barrels per day, the conflict risks involving other Middle East nations that are major producers, analysts said. Iran, which U.S. and Israeli officials say is a primary supporter and funder of Hamas, is attracting particular attention.

Iran has denied any involvement in the attacks, and the Biden administration has said that while Tehran is "broadly complicit" in supporting Hamas terrorism, it has seen no evidence of a direct Iranian role in planning or carrying out the recent attack on Israel.

Concerns over possible U.S. sanctions

For investors, the fear is that the conflict could "become a wider conflagration," drawing in the proxy agents of "Middle East regional players that are major oil exporters," which could have an effect on oil prices, according to Alan Gelder, vice president of refining, chemicals and oil markets at energy research firm Wood Mackenzie. 

"The most immediate market impact could be more stringent enforcement of [restrictions on] Iranian exports... by the U.S., if the conflict widens," Gelder told CBS MoneyWatch.

Any new U.S. sanctions against Iran, as well as potential risks to shipping and infrastructure across the Middle East, could jeopardize 500,000 barrels per day of Iranian oil exports, S&P Global said. That could be an issue given that global supplies of oil were tight even before the conflict, which means that any impact could ripple throughout the world economy.

"There has been no immediate impact on current global oil production, but the market notes is that supply could be disrupted if the U.S. were strictly to enforce restrictions on Iranian oil exports or if disruptions spread to the Strait of Hormuz," Natasha Kaneva, Prateek Kedia and Cole Wolf, commodity analysts at J.P. Morgan Securities, told investors in a report.

Will U.S. gas prices go up?

Iranian oil production has surged by 700,000 barrels per day as Washington relaxed its enforcement of sanctions against Tehran, CNN reported, citing Brussels-based think tank Bruegel. 

But if Washington decided to tighten sanctions against Iran, that could limit the country's petroleum output and affect global energy markets, according to Tom Kloza, global head of energy analysis for the Oil Price Information Service.

"Under some worried-about scenarios, tougher sanctions might suppress the growth in Iranian output we've seen so far in 2023," Kloza told CBS MoneyWatch. "Under the most drastic circumstances, an Israeli attack on Iran might alter all the calculus for Middle East crude."

For now, U.S. consumers may not notice much of an impact at the pump, at least in the short term, experts said.

"Oil prices are up, but that's much more a knee-jerk reaction to the turmoil in the Middle East," said Patrick De Haan, head of petroleum analysis at GasBuddy, told CBS MoneyWatch. "The major concern is … that Israel and Iran could get into conflict. That would be problematic [for U.S. gas prices.]"

"At this juncture, our base case is no imminent tightening on Iran's oil shipments to China as it is anticipated the U.S. administration will steer clear from actions that will directly impact Iranian oil supplies," J.P. Morgan Securities analysts said.  

Even if oil prices continue to rise, the impact at the pump may be muted due to the seasonal dip in gas prices during the fall months, De Haan wrote on X (formerly known as Twitter). That's because gas prices typically decline in the autumn, following a traditional summer bump caused by a surge in demand as more Americans take vacations and hit the road. 

"Even if oil went back to $90, these pressures still will win the tug of war, for now," De Haan wrote.

Israel and gas prices

More than half of all crude oil reserves are in the Middle East, according to current estimates from the Organization of Petroleum Exporting Countries. However, neither Israel nor the Palestinian territories are key oil producers, data from the Energy Information Administration shows. 

Yet the conflict between Israel and Hamas has some parallels with the Yom Kippur war of 1973, when Egypt and Syria launched a surprise attack on Israel, noted Charles Gave of Gavekal Research in a research note. While Israel was victorious, Middle Eastern oil exporters responded by cutting production and imposing an oil embargo on the nations that had supported Israel, he noted. 

"The price of oil shot up from US$3.50/bbl to more than US$10/bbl, setting off a huge wave of inflation in the West," causing deep recessions and budget deficits, Gave wrote. "Today, with supply and demand in the global oil market tightly balanced, there is a risk that supporters of one side or the other could target regional oil production, processing or transport, creating a squeeze in the supply of oil."

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• Oil Imports
• Hamas
• Israel
• Gas Prices
• Oil and Gas