Oil prices are on the rise amid attacks on ships in the Red Sea. Prices are at around $80 a barrel, which is far lower than prices were when Russia invaded Ukraine. Oil futures had then jumped to more than $100 a barrel. 

The prices have remained low since June 2022. Prices spiked after the Oct. 7 attacks on Israel, but have since been declining.

"Oil prices have fallen since October 7th, and that seems counter-intuitive if you consider how much oil is produced in the nations adjacent to and nearby to Israel," Managing Director of Clearview Energy Partners Kevin Book said.

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Israel is located near oil and gas giants — Saudi Arabia, Iraq and Iran. It is also surrounded by key oil trade routes.

"The market does not appear to believe there's going to be risks to regional transportation or production. The risks to production may be diminished because Saudi Arabia and Iran are currently getting along," Book said. "But the risks to transportation look very real. So the market may not be counting as much risk as there could be."

The Strait of Hormuz is often thought as the most important oil chokepoint. Nearly 1/5th of the oil the world consumes passes through the strait on a daily basis.

"People are particularly looking at Iran and Iran affiliated groups to see if this conflict will expand and will expand to that area in particular," American Exploration and Production Council CEO Anne Bradbury said. "That would certainly cause some much more significant supply disruptions in the global crude market than what we've seen thus far."

Since Israel’s war against Hamas began, tensions have risen in the waters surrounding the Arabian Peninsula. In recent weeks, Houthi rebels seized a carrier ship and attacked commercial ships in the Red Sea.

"We are continuing to take the situation in the Red Sea extremely seriously," Pentagon press secretary Maj. Gen. Patrick Ryder said at a recent briefing.

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The U.S. is working with more than 20 other countries to safeguard trade routes, but shipping companies have expressed confusion over what the group is actually doing to protect ships. Some companies have been rerouting vessels away from the area and are asking for more clarity and details on the coalition’s plans.

"Risks to travel through the Strait of Hormuz could be very significant," Book said. "Other adjacent waterways where you have risks to transportation could also impact the oil market."

Iranian drones have threatened ships in the region. One flew within 1,500 yards of the USS Dwight D. Eisenhower Aircraft carrier in the Strait of Hormuz. It filmed the vessel as it traveled along the key route.

The U.S. has shot down drones flying too close to ships near the Bab El-Mandeb Strait. In the Gulf of Aden, missiles targeted an Israeli tanker.

"The oil market looks ahead. So it doesn't mean that all the oil in the region has to stop. If one tanker stops, traders are going to start to bid the price up," Book said.

Iran often ships its oil using the flags of other countries to evade sanctions. Some experts warn, increasing sanctions on Iran could lead to increased hostility along key shipping routes.

"I think you see policymakers in the U.S. looking at ways to re-impose sanctions on Iran. There are concerns about what that would mean for global oil prices," Bradbury said. "I think it's really important to note that the U.S. is the largest producer of oil and gas in the world and that we should start looking here at home at policies to increase, not restrict American oil production."

Any dramatic increase in oil prices could complicate efforts to lower inflation. Global inflation sits at just under 7%. That’s twice as high as before the 2020 pandemic. The International Monetary Fund estimates a 10% increase in oil prices could push inflation up nearly a half percent.

In 2014, Congress decided against renewing a 35-year-old commitment that gave Israel oil from the U.S. in emergencies. Instead, Israel and the U.S. committed to ramping up clean energy production. Israel has also increased natural gas production and is issuing new leases for exploration even in times of war. However, some lawmakers say, if Israel needs oil, the U.S. should be ready to deliver.

"We should give them everything that we possibly can to make sure they're successful," said Sen. Joe Manchin, D-W.Va. "We need to get Saudis engaged. We need their help. It's going to be the Muslim and Arab world that are going to be have to be monitoring that and basically trying to help police that and bring some order to that area."

Several OPEC+ countries, including Saudi Arabia, say they are expanding cuts to oil output for early next year. The group says the voluntary cuts will now total 2.2 million barrels per day.

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"On the supply side, the oil market is typically very tightly strung. When you see some slack in the oil market, as we see right now, it's usually because OPEC producer nations have pulled supply off the market," Book said. "But if a conflagration breaks out in the Middle East, some of that supply that could come to the rescue if a tight market might also be blocked. So this could be a time in history when it could be very precarious, even if it looks like smooth sailing right now."