Iran war energy shock hits U.S. economy, gas and diesel climb: Analysis

The US economy is more vulnerable than ever to problems in energy markets caused by the Iran war. The economy remains remarkably resilient, but the buffers that previously protected Americans from price increases are weakening.

The bottom line: War will erode Americans’ living standards this summer, even if actual fighting remains more limited than in the first phase of the conflict.

From President Donald Trump’s perspective, having initiated a return to direct conflict with Iran, there is little he can now do to protect Americans from the economic crisis.

The White House says the president is being honest with the American people and prices will drop soon. “Oil and gas prices will return to pre-conflict levels as the U.S. military weakens the terrorist Iranian regime’s ability to attack commercial shipping and disrupt the free flow of energy in the Strait of Hormuz,” White House spokesman Taylor Rogers said in an email.

Anyone who has pumped fuel at the pump lately has already felt the pain. The national average price at the pump was $4.06 per gallon on Wednesday; This was up 4.4% from $3.89 a week ago. According to AAA.

This is very painful. But for the full economic impact, watch diesel “because it is, of course, the lifeblood of the US economy,” says Christian Lawrence, head of Americas and energy market strategy at Rabobank.

US Energy Information Administration quality test Diesel prices rose about 34 cents last week to $5.13 per gallon; this was the largest weekly increase since the first week of the war in March. These figures are used to determine fuel surcharges that airlines and other companies impose on customers, which can pass on price increases to the rest of the economy.

We’ve been here before, of course. Oil prices rose rapidly when the war began in March, and gasoline and diesel prices followed, only to fall a few weeks later when the shootings stopped. With periodic reports that the United States and Iran are trying to impose a new lull in conflict, a return to lower prices may seem just a presidential Truth Social post away.

Unfortunately, things have changed at this point, especially for diesel, which is economically vital.

“There’s a bit of an asymmetric relationship in the sense that if oil goes up, diesel prices go up as well,” Lawrence said. “If oil drops, diesel prices may drop slightly, but they will still be much higher.”

Problems are piling up in the refining industry, which turns crude oil into distillate products that are actually pumped into cars and trucks. U.S. refineries have reached 96.1 percent capacity, the EIA said Wednesday.

If refineries could produce more at this level, they would. U.S. refineries went into overdrive as the war began helping produce jet fuel and other products for European markets suddenly cut off from their suppliers in the Middle East.

Stocks depleted early in the war have not yet been replenished amid summer demand. EIA reported last week that storage at the key delivery point in Cushing, Oklahoma, has been at nominal levels since early June. under tankThe level at which remaining fluids cannot be physically withdrawn.

Strategic Petroleum Reserve up to 311 million barrelsIt is the lowest level since March 1983, according to EIA data.

Iran is not the only war still ongoing. BofA Global Research analysts stated that Ukraine has reached 24 of Russia’s 34 largest refineries in the last three months. While China is trying to replenish its own stocks, Russia has turned from a supplier of diesel and other products to an importer.

According to the report, more oil is currently passing through the Strait of Hormuz than in March, when the crisis was in full swing. International Energy Agency even though ship attacks in the waterway continue to pose a risk. But this oil is of no use to anyone unless it turns into something useful for the global economy. This makes reference prices, such as Brent crude oil at $94 a barrel at midday Wednesday, a less important indicator than the retail prices consumers actually pay.

None of this amounts to an immediate economic crisis, but it adds to the affordability pressures that have weighed on Americans for years. Inflation data provided a happy surprise last week, with the consumer price index coming in at a better-than-expected 3.5% in June. But the postponement is likely temporary. Higher fuel prices will eat into wage increases and force Americans to dip further into their savings.

The CNBC All-America Economic Survey, released last week, found that 37 percent of U.S. voters are using credit cards more often to pay due to rising food and gas prices. This represents a 6 percent increase since April, when the war dragged on.

Management tried to stop the bleeding. He oversaw the release of large amounts of oil from the SPR, eased restrictions on how ships could carry fuel and other goods, and reduced sanctions on Russian and Iranian oil. But all of these measures are allegedly already priced into the market, and it’s unclear whether the administration has more tools to use in the short term.

A permanent end to the conflict could lower oil prices, but gasoline and diesel could remain high at least through Labor Day in late summer, when there are fewer people on the roads. The increase in demand will eventually lead to the construction of more refineries.

“But this takes time. There is no short-term solution,” Lawrence said.