Analysts expect Bay Area gas prices to rise due to U.S.-Israeli intervention in Iran

By John Ramos

Bay Area gas prices took a sharp increase on Monday over the uncertainty of what’s going on in the Middle East. But analysts say that’s nothing compared to what may be coming, depending on how long the conflict in Iran lasts.

At the Shell station in Alamo, the price had already jumped to $5.49 for a gallon of regular gas. But just across the street at Chevron station, it was $5.09, 40 cents cheaper per gallon, which surprised Christopher Slye.

“I read it. It’s been in the news, and I was braced to see a 10-cent, 20-cent jump in the premium gas I normally get,” he said. “And it hasn’t moved.”

If it hadn’t moved yet, it soon will. The state already has the highest gas tax in the nation, adding 70 cents to each gallon purchased. California also mandates a special blend, which is designed to reduce pollution and improve air quality, that no other state produces. At the same time, refineries like Valero in Benicia are closing.  

Alex Jacquez, Policy Chief with the Groundwork Collaborative think tank in Washington, D.C., said the conflict in Iran couldn’t be coming at a worse time.

“The closure of the state of Hormuz and the associated shipping lanes are going to just make things more expensive for the imports that are coming in from the Middle East region and from Asia which right now are feeding California refineries,” he said. “So, expect additional costs on top of the premium that Californians are already paying at the pump.”

Jacquez said, as of Tuesday, literally no oil was moving out of the Middle East with Iran threatening to “set afire” any ship that tries to navigate the narrow Strait of Hormuz. President Trump countered with an offer to extend risk insurance and possibly a US Navy escort to ships, but at that point it was unclear whether there would be any takers. But Jacquez said, economically, the damage had already been done, driving crude oil prices up over $75 per barrel.

“Some analysts have predicted that if the conflict does go on, we could see prices as high as $90, $95, even over $100 a barrel,” Jacquez said. “And that could bring nationwide average gas prices up to $3.50 to $4.00, depending on how high they go. And of course California, which is already above $5.00 right now, that could drive things into the $7.00-plus range.”

But there is another reason for the pain at the pump. There is also a little-known federal regulation called the Jones Act.  It requires that anything shipped between US states use US-built, owned and operated ships, which are more expensive and in short supply.  

So, crude oil imported to California from the Gulf Coast states must first sail east to the Bahamas before turning back west to California. And that’s still cheaper than using US-flagged ships. Alexander Stevens, with the Institute for Energy Research, said the system can only take so much.

“The way markets work, they can be very resilient to some of these things, but, like I said, a death by a thousand paper cuts,” said Stevens.  “At a certain point a system gets stressed so much that it’s just very difficult for people to even coordinate where should oil, or where should any good really go?”

The analysts say the United States currently sits on a glut of domestic oil, so the nation will be insulated from the immediate supply shortage. But California imports most of its crude oil from foreign countries, so we are liable to feel the effects faster than other states.  And unlike other commodities, when gas prices increase, especially diesel, everything gets more expensive with the increase in transport costs.  

No one will be able to escape the pain of this.  

Back at the Chevron station, Christopher Slye said maybe that’s not such a bad thing, after all.

“A little pain might be nice to get people to try to understand the global implications of what’s happening,” he said. “How it affects real life.  I do expect it to affect prices and everyone’s cost of living.”