With fuel prices set by the government monthly, Israeli drivers have yet to feel the pinch from higher oil prices due to the war in Iran and the closure of the Strait of Hormuz. But consumers here may not be waiting long before the effect of higher energy prices on a wide range of goods and services starts to hit them in the wallet.

According to experts, the main costs of the conflict will stem from direct spending tied to the war, including paying for munitions, damage to the home front and ongoing restrictions on businesses throttling economic activity. Yet Israelis will also start to see higher prices on food and could also face an economic slowdown as knock-on effects of the energy crisis begin to bite.

“If the world economy is hit by another energy crisis, this is going to affect Israel, because we are a part of the world economy so we’re going to have to be also carrying some of the cost,” said Prof. Benjamin Bental, who heads the Economics Policy Program at the Taub Center for Social Policy Studies, a public policy research institute. “Right now, the energy story in Israel is of some concern, but relatively speaking, secondary.”

Since being attacked by the United States and Israel more than two weeks ago, Iran has been regularly hitting Israel, US bases, and its Gulf Arab neighbors’ energy infrastructure and other key infrastructure targets with drones and missiles.

It has also effectively stopped shipping traffic in the Strait of Hormuz, a key artery for the world’s oil supply, giving rise to fears of a global energy crisis.

Concerns over supply disruptions have pushed Brent crude oil to as high as about $120 a barrel since the start of the Iran war, and despite efforts to calm worries, trading has stubbornly kept the price at over $100 this week.

“While high energy prices are the main effect for most of the countries not directly involved in the Iran war, for Israel, it is of second order, because the main impact is the direct cost of the ongoing fighting,” Esteban Klor, a professor of Economics at the Hebrew University, told The Times of Israel.

Still, the effective closure of the strait to commercial shipping could be ultimately felt in people’s everyday lives for weeks and months, and send household bills spiraling, according to Klor.

Most obviously, the immediate economic pain of surging oil prices is set to be felt by consumers at the pump as gasoline prices........

© The Times of Israel