By IJEOMA OPARA, Capital News Service
COLLEGE PARK, Md. – Gas prices in the U.S. have risen by 33% since the start of the war between the U.S., Israel and Iran.
The war pushed up oil costs, with West Texas Intermediate crude, the benchmark for oil pricing in the U.S., going from $65 to $96 per barrel between Feb. 23 and March 23, raising gas prices from $3.07 to $4.09 according to the U.S. Energy Information Administration.
These figures reflect spot prices and are less than oil futures, which surged past $100 per barrel since the war, before declining slightly.
Spot prices are the market value for oil delivered immediately. Futures prices are estimated costs on a later delivery date based on market expectations. These rates have stayed elevated, though the White House described the situation as short-term.
“The recent increase in oil and gas prices is temporary, and this operation will result in lower gas prices in the long term,” Karoline Leavitt, White House Press Secretary said during a news briefing on March 10.
But global tensions have hiked oil and gas prices in three major disruptions since 1990, and in some cases, recovery took longer than expected, despite similar assurances.
When Iraq invaded Kuwait on Aug. 2, 1990, oil prices skyrocketed. Spot prices for WTI crude in the U.S. were at an average of $17.7 per barrel before the invasion, but quickly rose to $27.31 in August 1990.
Prices peaked in October at $36 per barrel, but immediately began a downturn, returning to pre-war levels in March 1991, after a U.S.-led coalition launched a ground assault that lasted 100 hours and resulted in Iraq’s withdrawal from Kuwait.
Over a decade later on March 20, 2003, the U.S. invaded Iraq again. This time, things were different.
Oil and gas prices began to climb about two months before the invasion due to market uncertainty.
After the U.S. invasion, prices dipped briefly, but rose again almost immediately and never truly recovered.
During the Iraq war which lasted until 2011, oil prices continued to soar not just as a result of the war, but other events, including a rising global demand in 2008.
Some analysts have argued that the Iraq war triggered the global recession that followed in 2009, causing a plunge in oil prices, though the climb resumed in 2010. By the time the U.S. completely withdrew troops from Iraq in December 2011, the cost of WTI crude hovered around $100/barrel.
The most recent major oil disruption in the U.S. before the war with Iran was Russia’s invasion of Ukraine in Feb. 2022.
Before the invasion, WTI cost an average of $78 a barrel in the U.S.
International sanctions on Russia, a major oil exporter, drove up global prices, and a month later, WTI rose to $108.50 a barrel.
Although the conflict between Russia and Ukraine is still ongoing, its impact on oil prices began to decline, and returned to pre-war prices in September 2022, after almost seven months.
President Donald Trump predicted that the current war with Iran would be over in four to five weeks, but analysts have warned that the war, currently nearing the end of its fourth week, could last longer.
Strait of Hormuz
A significant difference between the current oil disruption and previous cases is the restriction of transportation along the Strait of Hormuz, a major route through which about 20 percent of the world’s oil supply passes.
Iran declared the strait closed after the war began, attacking some ships that attempted the route and granting passage to only a few vessels.
The strait has never been closed before. Oil transportation continued through it during previous wars, and conflict-driven disruptions since 1973 have only affected between four and six percent of global supply.
With the restrictions and threats to completely close the strait, the current global disruption is about four times more than previous cases, resulting in what the International Energy Agency has described as the “largest supply disruption in the history of the global oil market.”
Energy and environmental economist Anne Alberini, who holds a doctorate in economics from the University of California, San Diego, told Capital News Service on Monday that the sudden hike in oil prices could result in a repeat of the 2009 recession.
“I am concerned, like a lot of other people are, that this could be a repeat of the situation in which the sudden spike in the price of oil is triggering a recession,” Alberini said.
Although the U.S. is the world’s top oil producer, global prices and events determine the domestic cost of gas.
Louis Preonas, who holds a doctorate in agricultural and resource economics from the University of California, Berkeley, told Capital News Service on Friday that the U.S. cannot refine all the oil it produces, because some local refineries were built for a different kind of crude.
The reliance on foreign oil plays a role in determining pump prices.
As a major oil producer, the U.S. stands to make more profit from higher global prices. But this does not protect Americans from paying more for gas.
“The problem is, we don’t have a system of taxes to redistribute all that wealth to people who are paying for gasoline,” Preonas said.
To keep prices down, Alberini said some European countries have temporarily suspended gasoline taxes in the past.
“I do fear that we are in for a long war,” Alberini said. “And I’m terrified when I think about the consequences for people.”
Methodology note:
The cost of oil returned to pre-war levels if they dropped to a 15% range of average prices. Average prices were determined by calculating the mean across the three months preceding each war.
