$5 gas prices? Drivers could pay more if Israel-Hamas war widens to threaten oil supplies

Unrest in the Middle East can upset oil supplies, raising gas prices at American pumps.

Oil prices soared on Monday, following the outbreak of fighting in Israel and Gaza after Hamas militants launched an attack on Israel over the weekend. However, experts don’t expect a long-term impact on oil and gas prices unless the conflict itself continues to escalate.

In fact, pump prices in the United States are falling.

"For the foreseeable future – for the next, shall we say, 15 to 40 days – people are going to see gas prices dropping," said Tom Kloza, global head of energy analysis at Oil Price Information Service. "Longer term, it's a concern."

Israel and Gaza are not major oil producers. But the crisis is playing out in a major oil-producing region. Neighboring Saudi Arabia is a world leader in oil exports.

“It’s a developing situation," said Patrick De Haan, head of petroleum analysis at gas price tracker GasBuddy.

The conflict likely won't impact gas prices “unless the fighting spreads to other countries that do produce a significant amount of oil, as has happened sometimes in the past,” he said.

Prices for U.S. crude oil, which is refined into gasoline, jumped Monday. U.S. oil was up 4.1% to $86.10. Brent crude, the international standard, rose 3.9% to $87.93 per barrel. U.S. stocks, meanwhile, wavered.

Why are gas prices going down?

A gallon of regular gas costs $3.70, on average, in the United States, according to motor vehicle club AAA. Gas prices are down from this time last week, last month and last year.

Pump prices are falling as they often do in autumn, a seasonal cycle that follows the summer travel season.

"There's quite a few chess pieces here," Kloza said. "But you can bet on the fact that gasoline is on a downward trend that is going to take us through Halloween or later."

Gas prices reached an all-time high of $5.02 on June 14, 2022, in response to Russia’s invasion of Ukraine.

The Israel-Hamas conflict may halt the seasonal decline in prices, Kloza said. But analysts don’t expect a big bump in oil and gas prices as long as nothing in the Israel-Hamas conflict threatens the world oil supply.

Saudi Arabia officials have signaled that the country might lift oil production early next year if prices range high, in a bid “to curry favor for a weapons deal with the U.S.,” De Haan said.

Iran, by contrast, “remains a very big wild card,” said Helima Croft, chief commodities strategist at RBC Capital Markets, speaking to Bloomberg.

Hamas attack on Israel comes 50 years after historic gas shortage

Iran is a major oil power and an important backer of Hamas, whose surprise attack on Israel coincided with the 50^th anniversary of the start of the Yom Kippur War.

That 1973 conflict prompted a historic oil embargo against the United States by members of the Organization of Petroleum Exporting Countries, or OPEC, over America’s support to Israel. Gas ran short, prices ran high, and gas lines ran long.

Israel and Iran have a long history of tensions. Those tensions could now escalate, potentially threatening the flow of oil from Iran and, by extension, oil and gas prices in the United States.

"That's the big issue down the road," Kloza said. "And I think that's an issue for the fourth quarter and the next few years."