The United Arab Emirates (UAE) announced its departure from OPEC and OPEC+ on Tuesday, dealing a significant blow to the oil-exporting groups and their de facto leader, Saudi Arabia. Meanwhile, the Iran war has disrupted shipping through the Strait of Hormuz, a critical maritime route for global oil and gas supplies, pushing oil prices to their highest levels in months.
Oil Prices Surge Amid Supply Constraints
Oil prices rose more than 3% on Tuesday as the Iran war kept the Strait of Hormuz largely closed, constraining Middle East supplies. Brent crude futures for June climbed $3.37, or 3.1%, to $111.60 a barrel, while U.S. West Texas Intermediate (WTI) crude for June rose $3.72, or 3.7%, to $100.09 a barrel. Prices pared some gains after the UAE's exit announcement.
U.S. Gasoline Prices Hit Four-Year High
In the United States, the average price of a gallon of gasoline reached $4.17, marking a 28% increase since the Iran war began on February 28. The conflict has caused one of the largest global oil shocks in history, with oil futures hovering around $99 a barrel—a more than 50% leap from pre-war levels.
Supply Chain Disruptions Affect Consumer Goods
The war's impact extends beyond fuel prices. Karex, the world's largest condom manufacturer, warned of potential price hikes of up to 30% due to strained global energy and supply chains. The Strait of Hormuz bottleneck is driving up costs for petroleum-based products, including medical supplies, plastics, and rubber.
Alternative Routes for Oil and Gas Exports
As the Strait of Hormuz remains a contentious waterway, alternative routes for oil and gas exports are being explored. These include Saudi Arabia's East–West pipeline, the Abu Dhabi Crude Oil Pipeline (ADCOP), and Iraq's northern export route to Turkey's Mediterranean port of Ceyhan. However, these routes face their own security risks and operational challenges.
Geopolitical Tensions and Negotiations
U.S. President Donald Trump expressed dissatisfaction with Iran's latest proposal to end the war, leaving the conflict deadlocked. Iran has shut shipping flows through the Strait of Hormuz, while the U.S. retains its blockade of Iranian ports. The International Energy Agency (IEA) has called the supply disruption the largest on record, surpassing the oil shocks of the 1970s and the loss of Russian pipeline gas after Moscow's invasion of Ukraine.