Former JP Morgan Chase Chief Economist Anthony Chan analyzes the rise in oil prices on ‘Varney & Co.’
Oil prices briefly spiked above $100 a barrel on Monday amid the ongoing war in Iran before falling sharply, underscoring how initial fears of supply disruptions eased as contingency plans emerged.
Before the outbreak of the war with Iran, oil traded between $60 and $70 a barrel, but prices soared after the conflict began, with crude futures hitting $115 a barrel on Monday – the highest level since 2022, when Russia invaded Ukraine.
Early headlines suggested global benchmark Brent crude could reach $150 a barrel due to the supply shock, although trading data showed the spike was short-lived. Crude oil prices fell 8%, with West Texas Intermediate down nearly 9% Tuesday afternoon.
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“But I think as the day went on, the market realized that maybe things aren’t that bad – the US is gaining incredible military victories, President Trump is saying, ‘Hey, you know what, the war probably won’t last that long.’ And there are even some signs that the world doesn’t have to just sit there and stand there and accept it,” he said.
Oil prices rose sharply due to the uncertainty caused by the war in Iran, although prices have since declined. (Giuseppe Cacace/AFP via Getty Images/Getty Images)
Leaders of the G7 countries and the International Energy Association (IEA) discussed on Monday and Tuesday possible release of strategic oil reserves in response to a possible price shock or market shortage. They concluded that they had no immediate plans to do so, while stating that they were prepared to take “necessary measures” to support the oil market if necessary.
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Oil production could rise in the next two years due to the price shock caused by the war in Iran, the EIA said. (Reuters/Todd Korol)
“We have the possibility of a coordinated release by the G7 and the IEA of oil reserves that could cool prices,” Flynn noted. “A lot of things happen that normally happen when prices rise, which can cause prices to cool down very quickly.”
He added that Saudi Arabia has built its east-west pipeline to prevent threats in the Persian Gulf and the Strait of Hormuz and has also increased its capacity to 7 million barrels per day, expecting it to operate at full capacity within days.
FED officials are closely monitoring the conflict in Iran for possible inflationary impacts
US naval vessels in the region have also taken part in the attacks on Iran. (DVIDS/US Navy photo by Mass Communications Specialist 2nd Class Devin M. Langer)
Flynn added that the Energy Information Administration (EIA) released short-term outlooks on Tuesday showing that higher oil prices will likely prompt U.S. producers to increase their crude production in 2027.
The EIA states that while “changes in oil prices take time to impact production – from investment decisions to rig deployment to well completion and first oil,” the reason is that the current price increase has a greater impact on production in 2027 and 2028.
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The US military has carried out air strikes on targets in Iran. (U.S. Air Force/Senior Airman Trevor Gordnier/51st Fighter Wing/DVIDS)
As the war in Iran continues, Flynn noted that if the conflict succeeds in eliminating the long-standing threat that the Iranian regime would close the Strait of Hormuz and fuel conflict across the Middle East through proxies like the Houthis in Yemen, it could result in lower oil prices in the long term, mitigating that risk.
“We’ve had an Iranian oil risk premium since Jimmy Carter… it’s never really gone away,” Flynn said, noting that insurance costs and perceived risk have remained embedded in oil prices despite the market’s fluctuations over the years.
The latest price spike bears some similarities to what happened during the early stages of Russia’s invasion of Ukraine in late February 2022, although oil prices had gradually risen above $90 per barrel before the invasion itself caused a spike above $115 per barrel. They remained around $100 a barrel all summer before gradually falling to $80 by the end of that year.
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Flynn said the conflict posed a different challenge than the last oil peak during the ongoing war in Iran, explaining that the “situation there was different because it wasn’t a lack of supply that drove up prices – it was the desire to stop buying Russian oil that the market was unwilling to replace, and a lot of that was bad energy policy, you know Europe’s green energy policies and Joe Biden.”
