Oil Prices Crack $100 a Barrel Amid Middle East Conflict Escalation

AILSA CHANG, HOST: The price of oil cracked $100 a barrel again today, and that is threatening higher gas prices at the pump. This follows a new escalation of the conflict in the Middle East. And joining us now to tell us more is NPR's Alina Selyukh. Hi, Alina.

ALINA SELYUKH, BYLINE: Hello, hello.

CHANG: Hello, hello. OK. So what is driving this price spike for crude oil?

SELYUKH: OK. So for months, we've been talking about the Strait of Hormuz, which is a key passage for global oil shipments from some of the world's biggest oil producing countries. And the U.S. war with Iran has effectively shut that down.

CHANG: Right.

SELYUKH: Well, now there's a threat to a second major passage, which has been an alternative waterway, especially for Saudi Arabia. And that's on the other side of the Arabian Peninsula. So you have the Persian Gulf with the Strait of Hormuz on the eastern side of the peninsula, and now we're talking about the western side with the Red Sea. And there, a new threat is coming from the Houthis. They are military rebels in Yemen who are aligned with Iran and have a long-standing conflict with Saudi Arabia. And they say they've attacked two Saudi oil tankers, and they're threatening a naval blockade of this second shipping route. So what does all that mean? Well, here's Erich Muehlegger, professor of economics at the University of California, Davis.

ERICH MUEHLEGGER: There's a lot of uncertainty with respect to oil supply. In particular, there's a lot of uncertainty about how much oil is going to be able to come out of the Persian Gulf.

SELYUKH: And now, also through the Red Sea - should I say it again? - uncertainty.

CHANG: Right. OK. But this moment, Alina, how significant is this milestone of cracking the $100 per barrel mark?

SELYUKH: Besides it being, you know, a nice number, round...

CHANG: Exactly.

SELYUKH: ...For us to watch, it's a pretty high price. For context, in early February, before the start of the U.S. war with Iran, Brent Crude was trading under $70 a barrel. Since the war began, we have been across the $100 line several times. The peak was much higher than today, but it is now the first time Brent Crude jumped over the $100 line since May.

CHANG: OK. So then does this inevitably mean higher gas prices at the pump?

SELYUKH: So I posed to this to Patrick De Haan. He's an analyst at the price-tracking app GasBuddy. I asked him, will gas prices move again, and how?

PATRICK DE HAAN: The answer is yes and up. So for now, the foreseeable future's pretty easy to call. It's going to be up. To what degree depends on how the escalations continue.

SELYUKH: Right now, gasoline prices are nowhere near their most recent peak in May, but they did climb this week back over $4 a gallon. That's according to AAA. De Haan is also watching diesel prices, and they matter because that's what goes into every tractor, train and your delivery truck.

CHANG: Yeah.

SELYUKH: And he says diesel prices could make a run toward an all-time high in the coming weeks because they're affected both by the Middle East conflict and by the escalating attacks by Ukraine on Russian oil facilities.

CHANG: And of course, also jet fuel.

SELYUKH: That's a big one. Today, we saw airline stocks really have a rough trading day because the surge in oil prices suggest a surge in jet fuel.

CHANG: Totally.

SELYUKH: Another piece of news today came from the mortgage market, which is also interestingly connected to all this. It's kind of a reflection of how the price of oil goes into the cost of shipping all kinds of things. And so there's a concern about inflation, how the government would respond with interest rates. Already, fuel prices are driving up the yield on the 10-year Treasury bond, and - this is the part that matters - that has been boosting mortgage rates. The average rate for a 30-year mortgage hit 6.58% this week, the highest in nearly a year.

CHANG: Everything is interconnected.

SELYUKH: Yes, indeed.

CHANG: (Laughter) That is NPR's Alina Selyukh. Thank you so much, Alina.

SELYUKH: Thank you.