Oil prices are rising to their highest levels in years as the war with Iran escalates

Oil prices rose as high as $120 US per barrel before retreating on Monday as the war with Iran escalated, threatening production and shipping in the Middle East and roiling financial markets.

The price of a barrel of Brent crude, the international standard, rose to $119.50 US per barrel in the morning but later traded near $106 per barrel, up 14 percent, before the opening bell.

West Texas Intermediate, a sweet, crude oil produced in the United States, rose above $119.48 a barrel but eased to near $103.

Oil depots in Tehran went up in smoke following overnight Israeli strikes. The cost of the war on civilian targets increased as Bahrain accused Iran of attacking its drinking water desalination plant.

Bahrain’s national oil company has declared force majeure for its exports after an Iranian attack set fire to its refinery. A statutory declaration relieves the company of contractual obligations due to extraordinary circumstances.

“Don’t underestimate the severity of this increase. Even if, if only, Trump comes in and calms the market, the impact of this I think will last for years to come,” said June Goh, senior oil market analyst for Sparta Commodities, during an interview with CBC News on Sunday evening.

“There will be a strategic reorientation for many Asian players, there will be a need to diversify and obviously Canada will be ready to be there,” he added.

Oil prices have soared as the war, now in its second week, has seized countries and territories important to the production and movement of oil and gas in the Persian Gulf.

Prices were moderated after the Financial Times reported that some members of the Group of Seven industrial nations were considering releasing strategic oil reserves to ease pressure on markets.

Strategy reserves the ‘option’: Macron

French President Emmanuel Macron said on Monday that “the use of strategic reserves is a possibility.” He said G7 leaders could meet this week to coordinate a response to rising electricity prices.

France currently holds the presidency of the G7 group. Separately, finance ministers from the G7 countries met on Monday via video conference to discuss the effects of the war.

On Saturday, US President Donald Trump downplayed the idea of ​​tapping into the US Strategic Petroleum Reserve, saying US supplies are sufficient and prices will drop soon.

About 15 million barrels of crude oil – about 20 percent of the world’s oil – are typically shipped daily through the Strait of Hormuz, according to independent research firm Rystad Energy.

The threat of Iranian missile and drone attacks has stopped tankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran from passing through the port, which is located on the northern border with Iran.

Iraq, Kuwait and the UAE have cut oil production as storage tanks fill due to reduced crude export capacity. Iran, Israel and the United States have also attacked oil and gas facilities since the war began, further exacerbating supply concerns.

High gas prices rocking Asian economies

Rising oil and natural gas costs are pushing up fuel prices, which are affecting other industries and the sluggish Asian economies that are most vulnerable to the region’s heavy reliance on imports from the Middle East.

Iran exports an estimated 1.6 million barrels of oil a day, mainly to China, which has called for an immediate end to hostilities. Beijing may need to look elsewhere for supplies if Iranian exports are disrupted, another factor that could push up energy prices.

“All sides have their own responsibility to ensure that the current situation is stable and smooth,” Chinese Foreign Ministry spokesman Guo Jiakun said at a briefing on Monday. “China will take necessary measures to protect its energy security.”

South Korean President Lee Jae Myung warned Monday of tough penalties for refiners and fuel stations caught collecting or rigging prices, saying it would be wise to find alternative supply routes that must pass through the Strait of Hormuz.

Across Southeast Asia, rising prices have led to long lines outside filling stations.

“High oil and gas prices will affect everyone and our economy,” said Le Van Tu, who was waiting outside a gas station in Vietnam’s capital, Hanoi. “All jobs, including those that use fuel for transportation, will be affected.”

South Korea’s Kospi fell six percent to 5,251.87.

The last time Brent and US crude futures traded close to current levels was in 2022, after Russia invaded Ukraine.

Why airfare can be so expensive

Higher energy costs are driving up inflation, straining household budgets and reducing consumer spending, which is the backbone of many major economies. Those worries have fed into financial markets, causing stock prices to plummet.

Jet fuel prices may increase in the coming months. US airline stocks fell last week, and United Airlines CEO Scott Kirby said on Friday that rising fuel prices could lead to higher airline costs.

Goh, an oil analyst, said travelers are advised to book trips sooner rather than later.

Many airlines have fuel programs in place, he said, which can help mitigate sudden increases in fuel costs. But they won’t be able to support you forever.

“The price of high quality jet fuel will come in and it will not be able to absorb it completely from the airlines themselves. So the consumer will need to feel the pain,” he said.

Meanwhile, the average retail price of gas in Canada reached $1.54 per liter on Monday, according to data from GasBuddy.com.

In the US, the average price of a liter of regular gasoline rose to $3.48 as of early Monday, up nearly 50 cents from last week, according to the American Automobile Association. Diesel, which is used mainly in shipping, is selling for about $4.66 a liter, a weekly increase of more than 80 cents.

The price of natural gas in the US also rose during the war, although not as much as oil. It was selling for about $3.34 per 1,000 cubic feet early Monday. That’s up from Friday’s closing price of $3.19.