If you own a car, you might be frustrated by the recent rise in gas prices. In Indiana, the price of gas has risen from $3.466 to $4.137 within the last month.
International Conflict and the U.S. Oil Supply
After the Trump administration attacked Iran on Feb. 28, the Strait of Hormuz was blocked by the Iranian government in retaliation, which prevented the exportation of oil and gasoline.
However, President Donald Trump said in a speech, “The United States imports almost no oil through the Hormuz Strait and won’t be taking any in the future. We don’t need it. We haven’t needed it.”
What he stated is not entirely wrong. Only 8% of the oil the United States consumes comes from the Middle East, and the US produces 13 million barrels of crude oil per day, where exports exceed imports.
Then Why Are Gas Prices Increasing?
At the end of the day, gas prices depend on the international market price. Even though the United States didn’t import gas through the Strait of Hormuz, nearly 34% of the world’s crude oil relies on the strait, most of which is exported to Asian countries.
Thus, the closure of the strait caused a significant increase in gas prices in the global market, resulting in a surge in U.S. gas prices as well.
Impact on U.S. Households
According to Raymond James Investment Strategy, if the current gas price remains constant, a household would have to spend an extra $800 on gasoline by the end of the year, creating a greater burden for lower-income households.
Since our economy relies heavily on oil, it could affect the prices of other products as well. The Organisation for Economic Co-operation and Development projects the war will push inflation in the US by up to 4.2%.
Countries Experiencing a More Severe Impact
The war has a greater impact on some Asian countries that heavily rely on their oil imports from the Middle East. For example, Japan imports almost 85% of its petroleum and petroleum products from the Gulf Countries, Iraq and Iran.
Some nations are taking drastic actions to reduce fuel consumption. The Philippines declared a “state of national emergency,” which limits air conditioning in public buildings and subsidizes public transport. The government in Bangladesh asked the public and businesses to avoid using unnecessary lighting.
Will the Ceasefire Lower Prices?
President Trump announced that he had agreed to a two-week ceasefire on April 7, provided Iran agrees to the safe opening of the Strait of Hormuz. Experts predict that once the Strait opens, the gas price will start falling.
Patrick De Haan, head of petroleum analysis for GasBuddy, said, “I would expect the national average could start declining at a pace of 5 to 10 cents a gallon in the next week.”
However, given the unstable political situations and multiple oil and gas facilities targeted in strikes, it is unlikely to go back to its original price.
Noah Barrett at Janus Henderson said, “even when the Strait reopens, I’d expect oil prices to remain elevated relative to pre-conflict levels.”
Thus, if the ceasefire is terminated, prices may quickly revert to escalating. De Haan said that “if there’s an abrupt halt or re-escalation, the decreases will stop, and prices could start to trend back up again.”
Now that we live in an era of globalization, we can see the effect of conflict happening in other parts of the world in every aspect of our lives. Regardless, the situation can change anytime, and we must keep an eye on the whereabouts of this war.
