Rising oil prices tied to tensions in the Middle East could lead to higher fuel costs for Americans in the coming weeks, according to a Tennessee Tech University economics professor.
Economics Professor Tim Roberson said 20 percent of the world’s oil comes out of the Persian Gulf, and to get out of the Persian Gulf, you have to go through a thin strip called the Strait of Hormuz. Roberson said threats to shipping in the strait have caused concern among oil traders, even though a major supply disruption has not yet occurred.
“So a lot of the trades in oil markets right now are based on expectations of future shortages,” Roberson said. “That is, traders trading on their risk assessments of how likely it is they think the Strait of Hormuz is going to be closed for a long time. And by risk assessments, that often means hopes and fears about the future.”
Oil prices briefly climbed above $100 per barrel earlier this week before falling back some. Prices remain higher than they were several weeks ago. Roberson said those prices are still elevated compared to normal conditions.
“Yeah, that’s quite high,” Roberson said. “The highest peak in 2022, when there was a lot of inflation, and Russia was invading Ukraine, was around $120 a barrel.”
Despite the global uncertainty, Roberson said the United States is less dependent on Middle Eastern oil than it was decades ago, thanks to increased domestic production and improved fuel efficiency.
“So we are actually, the United States is a net exporter of oil,” Roberson said. “So if you think economically, actually high oil prices tend to help the United States, because oil is a major export industry.”
Still, Roberson said consumers could feel the effects at the gas pump and through higher transportation costs for goods. He noted gasoline prices have already increased by roughly 50 cents per gallon in recent days.
“Even temporary spikes in the price of oil can cause more lengthy increases in fuel prices for gasoline and diesel,” Roberson said. “We see prices rocket up, but then they fall down like a feather.”
Roberson said the biggest factor to watch moving forward is whether the Strait of Hormuz remains open to shipping, as any major disruption could push oil prices significantly higher worldwide.
