Chapter 1: What impact does the war in Iran have on oil prices?
The oil markets wake up to the war. From American Public Media, this is Marketplace. In Washington, I'm Kimberly Adams in for Kai Risdahl. It's Monday, March 9th. Good to have you along. It's been a little more than a week since the U.S. attacked Iran, starting a war in the Middle East. And today, the oil markets finally seem to notice.
The price for a barrel of Brent crude soared to over $100 before coming back down. We haven't seen this kind of shock to the system since Russia invaded Ukraine in 2022. To help explain what all this means for the American consumer and the broader economy, we called up Catherine Rampell at MS Now and The Bulwark. We hear from her on the occasional Friday.
Catherine, good to speak with you on a Monday, a wild, wild Monday. Hey. A wild Monday. Thanks for having me, Kimberly. Yeah. So anybody who's driven by a gas station last week will have already seen the gas prices are up. How much of the impact from the war is already reflected in those prices that we're seeing at the pump? And how much worse are they going to get?
Well, it does depend, obviously, what happens with oil. And it has been a roller coaster in the last decade. 24 hours, let's say, where, as you mentioned, oil had shot up, I think, touching as high as $119 a barrel. And it's now, last I had looked anyway, it was below $90, in part because of things that Donald Trump is saying. So, you know, he can move markets, so who knows?
But at the very least, if there is a sustained disruption... in the Strait of Hormuz, you should expect gas prices to continue rising. And that's because at this point, the problem is not only that ships, tankers that would be carrying energy can't get through, it's that the countries that are producing the oil are running out of places to store it because they can't ship it out.
So I had seen something earlier today suggesting that even if everything... were to go back to normal today, right? If shipping lanes reopened and tankers could get through, it could take a couple of months before things actually normalized in terms of oil and natural gas, for that matter, being able to get back into production and shift around the world.
So all of that suggests that there could be prolonged consequences of at the pump and in other things that Americans buy. But again, you know, lots of contingencies there depending on how long this thing lasts. You know, I mentioned 2022 earlier when we saw that big hike in oil prices after Russia invaded Ukraine. But in 2022, unemployment was super duper low.
And right now our economy isn't looking quite as strong, especially that jobs report last Friday. Do you think that we're going to feel this price shock differently than we did in 2022? There's certainly a lot more fragility in the economy. You mentioned the job market is looking weaker. We've lost jobs in six of the last 12 months, something like that. So there's weakness in the job market.
We already have inflation still above target. That was the case, of course, in 2022 as well. But it has been a while now. So when you see a shock like this, there is the risk that it becomes somewhat self-perpetuating, that it's not just a one-time shock and that things go back to normal, but it feeds into higher inflation expectations. We haven't seen that yet, to be clear.
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Chapter 2: How are U.S. consumers reacting to rising gas prices?
Oil, 20% of the world's oil normally transits through the Strait of Hormuz on Iran's southern coast, but there's a lot of other stuff too. A huge portion of the world's fertilizer, or at least feedstock for the world's fertilizer, which is used to grow crops, that also goes through the Strait and that can lead to downstream higher costs for food prices.
We're already seeing crop prices, for example, fertilizer prices and crop prices for that matter. get more expensive. Lots of other production happens in that area. So there's a lot of aluminum that is produced in Qatar. And several different aluminum smelters have had to shut down, at least partially or perhaps entirely, because they're not getting enough energy because liquefied natural gas
is no longer able to transit. So there are these, again, knock-on effects that happen. So it's not just about oil. It's not really just an oil crisis. It's an everything crisis, essentially, because you have energy that is used to ship things around the world, buy products of oil production and refining, go into lots of other products. And so you can see these much broader effects.
all over the economy. Catherine Rampell at MSNOW and The Bulwark. Thanks so much, Catherine. Thanks, Kimberly. Like we were saying, just a wild, wild day in the markets. We'll have the details when we do the numbers. For many folks, this situation, a major war involving the U.S., Israel and Israel's enemy, global oil prices spiking, domestic gasoline prices spiking, may feel a bit like deja vu.
All this happened back in 1973 during the Yom Kippur War, and prices spiked again in 1979 after the Iranian Revolution. More than 50 years later, is the situation really analogous? And are there lessons to be learned from the past? We gave Marketplace's Mitchell Hartman today's history assignment. Roll the clock back to 1973. Richard Nixon was president. The U.S.
was then far and away the biggest economy in the world. And, says Princeton historian Julian Zelizer, This was a culture after World War II built around automobiles, around highways, around driving, new suburban homes, which required a lot of heating.
And a lot of oil, most of it pumped and shipped from the Middle East, which suddenly becomes a very big problem when OPEC declares an oil embargo on the U.S. and other allies of Israel. This triggers the first round of an oil crisis where Americans face long gas lines and high prices. There's a second crisis in 1979, when Iranian oil exports crater after Iran's Islamic revolution.
You can only buy gas certain days. People are siphoning off gas from people's cars. There's just this air of desperation. There's also resolve to make the U.S. economy less vulnerable by reducing our dependence on foreign oil. The government encourages more fuel efficiency and more oil exploration. Fast forward to now, says climate economist Gernot Wagner at Columbia Business School.
The world moved from the U.S. being the biggest oil importer to the U.S. being the biggest oil exporter. But there's a catch. Even with massive new U.S. oil fields, American businesses and consumers still pay the global market price. And yeah, those prices just shot up.
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