What will or won’t happen with the U.S. and Iran has oil producers, refiners, traders, and everyone in between in speculation mode.

West Texas Intermediate is currently trading at around $65 a barrel, but don’t count on it staying at that price. News about a potential U.S. military intervention in Iran have caused oil prices to rise and fall over the last couple weeks. That’s because of just how much of the world’s oil is produced by Iran and its neighbors.

The story starts with the Strait of Hormuz off the coast of Iran, said Tom Seng, assistant professor of energy finance at Texas Christian University.

“From a crude oil perspective, this is a choke point,” he said.

Roughly 20% of global oil travels through the strait, a narrow passage from the Persian Gulf to the open sea. So, Seng said there’s some different scenarios to consider.

“Do we impose more sanctions that can actually stop Iranian exports? Or, number two, does there become some type of a conflict where now ships passing through the Strait of Hormuz are in danger, or there’s a blockade?” Seng said.

Dan Pickering, founder and chief investment officer of Pickering Energy Partners, said we could either see a big Middle East war, or nothing at all. Either scenario would affect prices.

“In those scenarios, oil is probably anywhere from back into the ($)50s to over ($)100, which is obviously a very wide range,” he said. “The marketplace tries to assign probabilities on all of these possible outcomes and bakes in a premium.”

Oil is more expensive today because of something that may or may not happen off the coast of Iran tomorrow, or next month, Pickering said. That’s good for oil producers, because they get to sell oil at a higher price.

“Then there are the intermediaries who thrive on volatility, so higher volatility means more chances to trade around price,” Pickering said.

There’s money to be made off that risk, said Joe DeLaura, global energy strategist with Rabobank.

“We’re starting to see the options market really wake up over the past month,” he said.

In other words, there’s a shift towards speculation and hedging because of the uncertainty around where prices are headed. 

But not everyone profits from this higher risk environment, Pickering said.

“Who tends to lose? Consumers,” he said.

That risk premium trickles down to the gas pump, and regular Americans will pay the price. 

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