Oil is a global market, so when prices rise in one place, they rise everywhere. The current war against Iran has already .
Mideast oil production has been slowed by efforts to , a key route for oil tankers from the Middle East to the rest of the world, as well as by , storage and shipment installations.
And this war has also disrupted the flow of liquefied natural gas from Qatar, which . That also affects the world economy and supply chains. And shortages of natural gas affect production of fertilizer and aluminium, as well as other key materials.
As a professor who has been , I’m often asked about the effects of rising oil prices on the U.S. economy. The answer to that question has changed over the past two decades.
The global economic picture
Countries that import much of their oil have to pay other countries for that imported oil.
That was a problem for the U.S. through . The U.S. sent billions of dollars a year abroad to oil-producing countries in the Middle East, Africa and Latin America. That money built up other countries’ economies or that fueled financial market exuberance and asset bubbles that could suddenly pop.
Oil imports increased the U.S. trade deficit in the 1970s and beyond. And as a result, U.S. industries suffered from high energy costs, which forced and iron and copper mines. Falling purchases of cars and other durable goods also stimulated worker layoffs.
A shift in US production
Now, however, the United States is a major producer and exporter of oil and refined petroleum products. Every day, on average, the U.S. exports and .
The U.S. does still , most of which is heavy oil from Canada handled at certain American refineries on the U.S. Gulf Coast. Factoring in those imports, net U.S. oil trade balance is a positive 2.8 million barrels per day, as contrasted with the mid-2000s, when the balance was a deficit of 12 million barrels per day.
U.S. production comes from – though mainly from the biggest producers: Texas, New Mexico, North Dakota, Alaska, Oklahoma and Colorado. Because that revenue comes to companies in the U.S., the nation’s gross domestic product is than in the past, when high prices meant more U.S. dollars flowing overseas.
A changed economy
In addition to being less dependent on imports, the U.S. economy is much less oil-intensive than it used to be, producing today than in the past.
And researchers at the U.S. Federal Reserve report that in recent years. That’s because there are lots of ways Americans use less gasoline, including telecommuting and remote work, online shopping and using electric vehicles and delivery trucks that run on batteries or other fuels.
Still, other economists disagree and say current oil prices, which are above $100 a barrel, could increase current U.S. inflation rates by .
The mental toll
Though the U.S. is economically less vulnerable to oil-price shocks, there is also a psychological factor. It’s hard not to feel pessimistic when gasoline prices at the local pump are already rising: amid among traders and wholesalers and on U.S. commodity futures markets.
Americans when gasoline prices are rising. And a study found that high gas prices even make people .
Research also shows that , when oil prices rise sharply. That could mean bad news for the U.S. auto industry.
But it is also possible that high gasoline prices might encourage more Americans to . That could help the car companies that were . And for people who own electric vehicles, the war and its resulting price increases can be a reminder of the benefits of living gasoline-free.
More broadly, the war might be yet another reminder of the benefits of diversifying energy sources away from fossil fuels. As my research shows, oil price shocks generally lead to .
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