What's the war in Iran costing American consumers?

Americans are paying more for gas than they were a week ago. On Sunday, the price of oil hit $118 a barrel. It has since then come down from those highs, but remains up sharply from the pre-war price of $70. The price is being pushed up by disruption to oil supply out of the Persian Gulf. The straight-of-form ooze and narrow waterway between the Persian Gulf and the Gulf of Oman typically handles around 20 million barrels of oil a day, close to a fifth of the global oil consumption. But the war has brought tanker traffic in the straight to basically a standstill. When analysts have looked at the things that could go wrong in global oil markets, this is about as wrong as things could go at any single point of failure in the global system. That's Energy Analyst Kevin Buck, co-founder of Clearview Energy Partners, an independent research firm. He told NPR that the effective closure of the straight is the worst case scenario. Meanwhile in a Monday interview on CNBC, Goldman Sachs co-head of commodities research, the Mathadart, said the escalation in the war over the weekend made matters worse. So we saw news that some Iran oil facilities were getting hit. So this number one does not de-escalate the situation. And if you don't have the escalation, the market starts to price in not just your regular gradual adjustment that requires a little bit of higher prices, but rather, hey, this massive shock might last longer than we think. After this, the average price for a gallon of gas has jumped up 50 cents in a week, and a surge in energy prices ripples across the economy. So what does the Iran War mean for affordability? From NPR, I'm Scott Detro. This message comes from Wise, the app for international people using money around the globe. It's considered this from NPR. The Iran conflict has thrown global oil markets into an uproar. The price of crude oil rose above $100 a barrel last night for the first time. This Russia launched its full-scale invasion of Ukraine. This has had huge implications for the global economy. And joining us to talk about this is Rafael Nomm and PR as senior business editor, as well as Camila Domenoski who covers the oil industry. Hi to both of you. Hey, hey. Hey there. We're only going to start with you. Why is it so significant that we passed $100 a barrel benchmark? Yeah, I mean, look, it's psychological. It's triple digits, right? And the price actually got very close to $120 overnight, which was a huge increase from around $70 a barrel before the US and Israel had attacked. Now since then, prices have come down quite a bit. I was looking right before we talked. It's a little after 4 p.m. Eastern. And they're around $90. Now I will say if the conflict does stretch on, a lot of analysts expect these prices to go up. And if anything, it's surprising that prices weren't much higher than this much sooner. The flow of traffic through the key waterway, the straight of her moves, that dried up more than a week ago. I'm in a boxer is the head of Middle East Insights at Kepler, which is a trade intelligence group. She spoke to me from Dubai and she says that straight closure was catastrophic. So not having oil prices react to that was quite a shock, to be honest to me. And she's far from the only analyst I have spoken with who thinks that really prices ought to be higher than they have been given the scale of the crisis. Interesting. Now, given that Raphael, what has been the reaction in the financial markets? You know, the reaction in stock markets has also not been as bad as people feared. I mean, the main benchmark, the Dow Jones Industrial Average, actually rose today after falling as much as nearly 900 points in the morning. But it's still down about 2% or over 2% since the war started. So investors are nervous, definitely. But we're not seeing the level of panic we could have seen given the economic stakes here. Why do you think that is? Well, there's a couple of recent scots. One is that despite all the negative factors in the market recently, there's the continued uncertainty behind tariffs, the uncertainty about AI. Investors are all novel still optimistic about the US economy, which has held up better than many had expected. And even more importantly, there's still hope Trump will eventually decide that the economic consequences of a continued war with Iran are just too high. I talked to John Kanavan, who's an analyst at Oxford Economics, and this is how he put it. So the reason is that chance that this war could end at any moment if President Trump decides to end it. And given that, I think market participants are hesitant to become overly bearish on the financial markets, only to have to turn out a dime if the war does end, if the trade reform moves does reopen, if things do come down. So basically, investors don't want to get too bearish, meaning too pessimistic about the markets, at least not yet. Camilla, we've seen a lot of different kinds of attacks so far in this war, attacks on military bases. There was this deadly strike on a school. What kind of attacks are moving markets when it comes to oil prices? Yeah, too specifically, attacks on ships and then attacks on oil facilities. So these strikes on ships, that's what's been disrupting transit through the straight of our moves, that tremendously important waterway. 20% of global oil and liquefied natural gas typically passes through that bottleneck, barely any is getting through now because ship owners simply view the passages to risky. And the thing is that that is actually causing countries in the region to have to stop producing oil in some cases, because they literally have nowhere to put it. Here's a minibucker again. Storage tanks are filling up and their experts roots are blocked and they've had to cut production. I'm talking specifically here about Iraq, Kuwait and Bahrain. And it can take some time to restart production after you close it down like that. And second, there are these attacks on oil facilities specifically. We have seen both sides in this conflict attacking oil facilities across the Gulf. And if those kinds of facilities wind up being destroyed, it would be very difficult to restore production even if a ceasefire is called. This is such a big part of the oil production of the world, but it's a fluid market. How quickly can the rest of the world compensate for this oil cut off? Yeah, so some of it can be redirected. Saudi Arabia has a pipeline to get oil out through the Red Sea, for instance. There's some Russian crude production that the US had put sanctions on. That's been lifted so that India can buy that oil. The world also has billions of barrels of oil in reserve. After the oil crisis in the 1970s, a lot of countries agreed to keep backup supplies around. Some major economies called the G7 met today to discuss tapping those reserves. That could be one thing that's helped oil markets stabilize. But they have not actually decided to release that oil. And even if they do, if you add it all up, experts say there is still a gap. I asked Jim Burkhard, the head of research for oil markets at S&P Global, how well the world can offset this shock? Well, the quick answer is it can't because the scale of this disruption is so large. And it gets harder the longer the conflict goes on. Every analyst I've spoken to about oil says that nothing would stabilize markets like reopening the straight wood. There's just no substitute for peace. Raphael, what are the implications here for the broader global economy? It really all depends on when this conflict ends. And the longer this goes on, the more people are going to start feeling really alarmed. I mean, moments like this remind you of just how important oil remains to the global economy. Now analysts do say the US economy is probably better able to absorb this cost because it's more energy independent than it was in the 70s, given that there's far more domestic production. But that doesn't mean the US will be immune. Higher oil prices are going to mean higher gas prices. And if it remains that way for long, it means we could be seeing more inflation in the US. And this at a time when Americans are so concerned about affordability already. And the impact could be even more dire for the economies in Asia and Europe, which would lie heavily on Middle Eastern oil and natural gas supplies. Not only that, there are critical things like fertilizer and agricultural commodities that travel through the state of Hormuz, and that's raising big concerns about food security. Camilla, what is this done for gasoline prices at the pump? They are up. They're expected to increase even more, and diesel is up even higher. That is NPR's Camilla Domenoski, as well as Raphael Nom, thanks to both of you. Thank you. Thanks. This episode was produced by Mi event cat. It was edited by Courtney Dorning, Cara Plotoni, and Luis Clements. Our executive producer is Sammy Enigan. It's considered this from NPR. I'm Scott Detro. Want to hear this podcast without sponsor breaks? Amazon Prime members can listen to consider this sponsor free through Amazon Music. Or you can also support NPR's vital journalism and get consider this plus at plus.NPR.org. That's plus.NPR.org.