Middle East conflict highlights how vastly the global energy supply has
changed in recent years
[June 26, 2025] By
MATT OTT
WASHINGTON (AP) — Iran launched missiles at a U.S. military base in
Qatar on Monday, threatening to stoke a wider conflict in the Middle
East, a region that supplies the world with about a third of the oil
used globally every year. That same day, benchmark U.S. crude tumbled
more than 7%, one of the biggest single day sell-offs this year. The
following day, the same thing happened, driving crude prices down by
double digits this week.
The seemingly illogical tumble in energy prices highlighted a new global
reality: the world is awash in oil.
Gasoline prices barely moved this week, but experts say motorists will
likely see prices at the pump begin to fall, perhaps as early as this
weekend.
With the situation in the Middle East still volatile, Iran could try to
block the Strait of Hormuz off its coast, through which 20% of the
world’s oil passes daily. While few expect Iran to do that because it
would cripple the ability to move its own oil, the fact remains that
there have been drastic changes in the 50 years since an Arab oil
embargo hobbled the U.S. economy and sent energy prices skyrocketing.
Following is a quick rundown of the new forces on supply and demand that
have reshaped the global energy landscape, and what you can expect to
see as far as prices at the pump this weekend.
PRICES AT THE PUMP
Technical innovation in the last two decades has upended global energy
markets and made the U.S. the world's top oil producer, surpassing even
Saudi Arabia in 2018. It's contributed to an extended surplus of oil,
and that has consistenly driven prices lower.
Gas prices have been in broad decline for roughly three years. That has
remained true even during traditional periods of high demand, like the
summer travel season just now kicking into high gear.
Part of the reason, according to Patrick De Haan, the head of petroleum
analysis for GasBuddy, is that the U.S. announced aggressive tariffs
against its trading partners at around the time of year that U.S. gas
prices usually begin to rise. That suppressed demand, for both
households and businesses, due to anticipation of economic fallout from
a broader trade war.
And prices are likely to begin falling again, and fast. Gas stations
bought their fuel supplies before crude prices slumped this week, so
motorists have not seen gas prices decline due to a typical lag between
oil and gasoline prices.
“I think that the national average will probably cease to increase in
the next 24 to 48 hours,” Patrick De Haan, the head of petroleum
analysis for GasBuddy said Tuesday. “Then it should stabilize for maybe
a day or two and then we should start to see prices — at least the
national average — to start falling this weekend.”
On Wednesday, the average retail price for a gallon of gas in the U.S.
was $3.23, down from $3.47 a year ago. In June of 2022, the average U.S.
price for a gallon of gas eclipsed $5, an all-time high, according to
the auto club AAA.
SUPPLY & DEMAND
The U.S. is producing record volumes of natural gas and crude.
Production has reached such high levels that energy companies are
shutting down drilling operations because pulling crude from the ground
with prices so low doesn't make financial sense.
The odds of a U.S. oil company taking action after President Donald
Trump's this week implored them in a social media post to “drill, baby,
drill,” is slim to none.
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 U.S. drilling activity began to slow
last year and the number of active oil and gas rigs in the U.S. fell
last week to 554, the lowest level since November of 2021. That's a
decline of about 19% from a year ago at this time.
That might lead to short supply and higher prices if it weren't for
producers outside of the U.S. that are currently boosting
production. The type of drilling operations run outside of the U.S.
can be less nimble and harder to shut off, and revenue demands much
greater.
The OPEC+ alliance of oil producing nations this month announced
that it was increasing production. This week, S&P Global Commodity
Insights raised its 10-year production forecast for the Canadian oil
sands, expecting production to reach record levels this year.
Yet these supply forces are colliding with the reality of weakening
global demand for oil.
According to the International Energy Agency, oil’s share of global
energy demand in 2024 fell below 30% for the first time ever.
Overall energy demand has increased, but more so for natural gas and
other energy sources, the IEA said in its most recent annual report
published in March.
Oil demand grew a meager 0.8% last year, according to the IEA.
Part of the reason is new technology in transportation.
Global sales of electric cars climbed 25% last year, according to
the IEA, just the most recent example of the mainstreaming of EVs.
One of every five vehicles sold last year was electric. That's one
of the reasons demand for crude is falling, while demand for
alternative forms of energy continues to rise. Additionally, fossil
fuel powered engines are becoming increasingly efficient, whether
they are traveling through the air, by sea, or on the road.
And right now, the same anxiety that has led households to cut down
on trips in the car is also impacting airlines, which have reduced
their projections for air travel this year due to potential trade
wars and the economic unease that comes with them. That has added
further downward pressure on oil prices.
RISE OF ALTERNATIVE ENERGY
New energy technology of course reaches beyond transportation.
According to the IEA, 80% of the increase in global electricity
generation last year was provided by renewable sources such as wind
and solar.
As more alternative energy sources are established, including
natural gas, the demand for crude falls. Demand for natural gas grew
2.7% in 2024, while oil demand rose just 0.8%, down from a 1.9%
increase in 2023.
Major U.S. technology companies have begun investing heavily in
nuclear power to meet their energy needs for artificial intelligence
and data centers.
Facebook parent company Meta, Microsoft, Amazon and Google have all
announced investments in and partnerships with nuclear power
companies in the past year.
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