How an oil price shock will affect American consumers: FT
3 Min Read
Traders are concerned that an Israeli reaction to Iran's Operation True Promise 2 may target Iran's oil infrastructure, which exports around 1.7 million barrels of oil per day.
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Prices for gasoline and diesel fuel are displayed at a gas station in Monterey Park, California on March 4, 2022. (AFP)
The likelihood of a full-scale regional war in the Middle East is higher as "Israel" continues to conduct its genocide in Gaza and escalate its aggression on Lebanon.
The rapid escalation in the Middle East has awakened the oil market, which had been stable until recently despite the ongoing wars in the region and had not experienced any major supply disruptions.
The price of Brent crude, the international benchmark, rose to $76.03 per barrel before settling at $73.90. West Texas Intermediate, the US benchmark, closed up 0.4% at $70.10 per barrel.
Traders are concerned that an Israeli reaction to Iran's Operation True Promise 2 may target Iran's oil infrastructure, which exports around 1.7 million barrels of oil per day. A strike may also bring the area closer to a worst-case scenario for the oil market, in which OPEC output would be hampered and Tehran would close the Strait of Hormuz, a critical petroleum chokepoint, driving prices into the triple digits.
According to Ben Hoff, global head of commodity strategy at Société Générale, "It's like a game of Jenga, where the question really becomes, once you're at the seventh or eighth block, which one is it going to be that just ends up being a little bit too much, and the whole thing collapses on itself?"
Harold Hamm, the founder of Continental Resources and a financier to Donald Trump's presidential campaign, warned that the US was "unusually vulnerable" to a Middle East oil shock, blaming Joe Biden's policies for leaving the US shale patch in "weakened condition".
Hunter Kornfeind, an oil market analyst at Rapidan Energy Group, stated that out of all developed nations, the US is "most prepared" for a "significant disruption in the Middle East."
However, this does not mean consumers will not be affected.
While the US became a net petroleum exporter in 2020, it is still a net importer of crude oil, which is commonly utilized in refineries, according to the Energy Information Administration. Higher global oil market prices will raise prices for refined goods like gasoline and diesel for American consumers.
The most significant of the consequences is set to be the election. If fuel costs increase before Americans vote for a new leader, "that will be immediately felt at the pump, and that’s what American voters care about more than anything else in terms of daily pricing," said Henning Gloystein, practice leader of energy, climate, and resources at Eurasia Group.
He noted that rising gasoline costs in the coming weeks would be a "bad situation" for Democratic candidate Kamala Harris' electoral prospects.
