Oil price hike from Iran war will help Alaska’s fiscal struggles; how much may depend on how long it lasts
- Mark Sabbatini
- Mar 2
- 4 min read
Updated: Mar 2
Analysts say oil prices could top $100 a barrel, which would mean $1.5B more for the state during the coming year — enough to balance the budget and pay a PFD of more than $3,000
By Mark Sabbatini
Juneau Independent
It’s a cold financial fact amidst the humanitarian considerations of the war against Iran: A resulting increase in oil prices will help Alaska’s fiscally struggling state government — potentially on a large scale.
A hike in oil prices is also expected to result in higher gas prices, meaning Alaskans could be paying more at the pump and for heating oil while also getting a larger Permanent Fund dividend this fall due to the hostilities.
Oil prices quickly jumped more than 10% during the weekend after the United States and Israel attacked Iran early Saturday morning, and some analysts are forecasting oil may top $100 a barrel if the conflict is prolonged, according to numerous published reports.
Alaska’s current $12 billion budget has a break-even point of $64 a barrel and the state revenue forecast issued in December calls for prices to average $62 a barrel during the coming fiscal year that starts July 1. That means the state would incur a significant deficit with a status quo budget.
Alaska North Slope (ANS) crude oil was about $71 a barrel on Monday. Sen. Bert Stedman, a Sitka Republican who co-chairs the Senate Finance Committee, said that’s enough to address the challenges the state is expected to face during the coming year.
"If we have a $70 barrel oil going in for fiscal year ‘27 — from July on — that makes getting the ends to meet reasonably easy," he said.
But a price jump is less helpful for immediate needs, as state lawmakers are working to pass a supplemental budget of nearly $500 million to cover expenses not in the budget signed by Gov. Mike Dunleavy last June. Items in the supplemental budget include disaster relief following Typhoon Halong, wildfire firefighting efforts, transportation projects, overtime for corrections offices and numerous other expenses.
"With the current spike — and we only have four months left in the year — we might pick up $100-$150 million or something," Stedman said.
The House passed the supplemental budget by a 24-16 vote last Monday, but that margin is short of the three-quarters requirement to pay for it using the state’s Constitutional Budget Reserve fund — and its fate in the Senate is also unknown. The oil price hike means fewer reserve funds might be needed, but legislators would still need to get enough votes to tap the reserve or make cuts to the supplemental budget to get it to balance.
The Alaska Department of Revenue is scheduled to provide its official spring forecast in about two weeks, at which point lawmakers are likely to have a much clearer sense of budget possibilities for this year and next, Stedman said.
The fall revenue forecast projects $2.219 billion if oil averages $62 a barrel during fiscal 2027. That increases to $2.46 billion if oil averages $70 a barrel and $3.76 billion if oil averages $100 a barrel.
That $1.5 billion difference between $62 and $100 oil is the same amount as the deficit in Dunleavy’s proposed budget for the coming year, which is due to a PFD of $3,650 per resident. Legislators in the bipartisan House and Senate majorities have said a dividend similar to last year’s payout of $1,000 is likely, especially since the current fiscal forecast for the next several years is grim based on an assumption oil prices will remain low.
Lawmakers in 2022 approved a total payout to residents of $3,284 — consisting of a $2,621.81 base PFD and $662.19 "energy relief payment" — when oil prices were higher than expected due largely to Russia’s invasion of Ukraine.
President Donald Trump said Monday the U.S. expected its military operations against Iran to last four to five weeks, but there is “ the capability to go far longer.” Among the reasons for the price spike is disruptions in the Strait of Hormuz — which accounts for about 20% of global oil shipments — and damage to production facilities through the Middle East, according to the Associated Press.
In response to the attacks by the U.S. and Israel, Iran is launching counterattacks against several countries in the region. Torbjorn Soltvedt, a Middle East analyst at the risk intelligence company Verisk Maplecroft, told the Associated Press that Iran’s goal is to pressure the countries attacked into asking the U.S. and Israel to de-escalate the conflict.
“If we start to see additional direct attacks against energy infrastructure, not just in Saudi Arabia and Kuwait, but in other countries in the region, then that’s when the market will start to think about a push toward $90 and perhaps even beyond,” he told the news agency.
• Contact Mark Sabbatini at editor@juneauindependent.com or (907) 957-2306.
