What Iraq Conflict Might Mean for Gasoline Prices and Alternative Fuels

by Jon LeSage

Military conflict has returned to Iraq during a period of time the United States has been wrapping up its military presence. Oil traders are worried that the action could spread, threatening supplies and prices. Iraq is the second largest oil producer in the 12 OPEC-member countries, and has been producing the largest source of growth among OPEC countries.

While a sharp price hike is thought to be unlikely, the Iraqi battle zone and turmoil in other major oil producers may keep prices increasing gradually. Chaos in Libya and Syria has diminished these countries’ oil production. Iran has faced international sanctions; two other key exporters, Nigeria and Venezuela, have been facing their own difficulties. Oil prices have risen to their highest level this year, and analysts expect gasoline prices to rise by as much as 10 cents per gallon due to the military conflict in Iraq.

Crude oil prices hit their peak in July 2008 with $144.96 for West Texas Intermediate (WTI), the US standard, and $139.62 for Brent, the international benchmark. One year after their peak, oil prices dramatically dropped; while they’re not expected to be heading up the 2008 peak anytime soon, the crisis in Iraq and other countries should bring WTI and Brent prices beyond the low-$100 cost per barrel range. Oil prices have gone up modestly in recent days with all the uncertainty in the global markets.

Spiking gasoline and diesel prices have always raised interest in alternative fuels. Propane autogas has been in the $1.89 to $1.99 price range lately, according to Roush CleanTech and CleanFUEL USA. Compressed natural gas recently has been selling for about $2.25 in gasoline gallon equivalent in key US markets, according to CNGPrices.com. Flex fuel is priced lower than gasoline and diesel, but higher than both fuels if you factor in the E85 MPG/BTU adjusted price, according to the AAA Daily Fuel Gauge Report.

As for biodiesel, B20 has been getting somewhere around $4.00 to $4.50 per gallon (according to AltFuelPrices.com) – a little bit higher than regular diesel. Fuel prices play a large part in the vehicle acquisition decision for consumers, fleets, and senior management. Resurgent turmoil in the Middle East will likely raise interest in the fuel pricing trend.

Jon LeSage is Automotive Editor, Green Initiatives at Automotive Digest. Jon also serves as Editor and Publisher of Green Auto Market.

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