Iran Attack Would Drive Up Gasoline and Electricity Prices

A war in the region could greatly disrupt the traffic of tankers transporting oil out of the Straits of Hormuz. In addition, market speculators would likely cause serious price fluctuations.

If Israel does attack Iran, oil prices can be expected to soar, which would in turn push up gasoline and electricity rates.

The hike would be a result of a combination of factors: War in the region would disrupt tanker traffic through the Straits of Hormuz, a key artery for the world oil industry. Also, speculators would likely cause spikes in price.

The impact would be mitigated at least somewhat by the drop in demand that has resulted from the global economic slowdown.

In Israel, prices at the pump would be the first to reflect the increase in oil prices, followed by the prices of diesel and other fuels. After that, electricity rates would be forced up.

The Israel Electric Corporation is the biggest consumer of petroleum in the land. It has been spending up to NIS 100 million a day recently for coal, diesel, fuel oil and natural gas to run its plants. The price of gas isn't linked to oil, but on  the other hand, Israel is short of supply since Egypt terminated the contract following serial sabotage of the pipeline, which runs through the Sinai desert.

Because gas is so short, it currently accounts for only 8% of the fuel the IEC uses to produce electricity. Nor is that figure expected to rise until mid-2013, when the deep-water field Tamar should begin production.

Petroleum prices are already climbing as tensions in the Middle East rise, but they have not spiked. Brent crude rose above $114 a barrel on Monday for the first time in three months, an increase of around 1.5%. But even after the price climbs of recent weeks, that is far below the all-time high, reached during the global economic crisis of 2008, when crude oil went for nearly $150 per barrel.

Oil prices again skyrocketed in March, when Iran threatened to block the Straits of Hormuz as a response to economic sanctions. A barrel of Brent crude exceeded $120 at the time.