How sheltered really is the US from the Gulf oil supply crisis? | US-Israel war on Iran

A month has passed since the US and Israel’s war against Iran and the almost complete closure of the Strait of Hormuz, through which approximately one fifth of the world’s oil resources flow. Prices rose on fears that global supply would be constantly disrupted.

Donald Trump argues that this is not his country’s problem. “Go get your own oil!” The president called on countries including the UK earlier this week. He added that the United States has “plenty.” The president claimed in his prime-time speech Wednesday that the United States is “completely independent” from the Middle East. “We don’t need their oil.”

“We are under my leadership” [the] “We’re not even discussing the millions of barrels we get from Venezuela, which is not the No. 1 oil and gas producer on the planet,” he said.

Trump and his allies are hailing the United States as an energy “superpower” following a historic surge in domestic oil production fueled by the fracking boom. It has produced more oil than the entire country has consumed for years.

But the oil market is fundamentally international.

Unlike natural gas, another major energy source whose prices can vary widely in different parts of the world, the oil market is much more interconnected.

The US reference price for gas, known as henry hub, is currently below $3 per million British thermal units (MMBtu), while the European Dutch title transfer facility (TTF) price is trading above $16. A price increase in Europe does not necessarily have to cross the Atlantic.

“Gas, unlike oil, is difficult to move,” says Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis. “You can’t pour gas into a barrel and then move that barrel to another location.”

Significant oil price movements are rarely confined to a particular region. Brent crude, the international benchmark, has risen by nearly half since the start of the war, reaching north of $100 a barrel, and rose sharply after Trump’s latest speech.

“Think of it like a giant swimming pool,” Williams-Derry said. “There are waves or undulations, but the entire swimming pool rises or falls. The global market determines the base level.”

“Under current policy, being a net exporter does nothing to protect the United States from global price trends,” he added.

The United States exports more oil than it imports. But it still imports millions of barrels a day and was dependent on Gulf countries for almost a tenth of those imports last year. Many U.S. refineries are equipped to process heavier crude oil from lighter, sweeter stuff produced primarily domestically in the United States.

The energy supply disruption caused by the war against Iran goes far beyond oil. Global fertilizer costs have risen sharply, prompting U.S. farmers to re-evaluate their planned crops as the Strait of Hormuz continues to be paralyzed. A small but significant portion of U.S. fertilizer imports come from the Middle East.

Qatar supplies approximately one-third of the world’s helium, which plays an important role in semiconductor production. However, the country stopped production last month; This is a potentially worrying move for chip makers and many of the industries that depend on them.

But for now, oil remains the most visible indicator of the turmoil. Being a net exporter “does not protect American households from differentially high prices,” said Neale Mahoney, Trione director at the Stanford Institute for Economic Policy Research.

“Because of oil [price] “If it increases, it will be beneficial to certain sectors of the US economy (energy production sectors) and certain states within the US (Texas, New Mexico, North Dakota, major energy producing states),” he added. “Even though it does not protect the US consumer and US consumers will feel the pressure, there are losers as well as winners in the US.”

But the rise in major oil stocks this year will do little to cheer up the majority of drivers who fill up gas stations across the United States. Amid widespread frustration over the rise in costs, average fuel prices across the country surpassed $4 per gallon for the first time since 2022 earlier this week.

“Because we produce oil and gas in the United States, when prices go up, consumers pay more and producers earn more,” Williams-Derry said. “The ‘energy independence’ talk should be seen as a smokescreen,” he added. “A low-income person whose livelihood balances on a knife edge literally cannot afford higher prices at the pump.”

Many incumbent presidents and congressional candidates have learned that high fuel prices can cripple political campaigns. With seven months until the November midterm elections and Republicans’ control of Congress hanging in the balance, voters across the country are paying increasingly more to fill up their cars.

Trump’s apparent confidence that they won’t suffer for long is perhaps best summed up by the old adage: What goes up must come down. “When this conflict ends, the strait will naturally open,” he said in a statement on Wednesday, predicting that fuel prices would “fall rapidly.”

Mahoney, who was a member of the White House national economic council during Joe Biden’s administration, isn’t so confident the situation will turn around quickly. “There is the famous rocket and feather phenomenon where retail gasoline and gasoline prices rise rapidly and then float down like a feather,” he said. “Even if crude oil prices fall fairly quickly, we’re likely to see higher pump prices in the spring and mid-summer.”