Consumers were pessimistic before the war. Now what?
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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. But that is something that presumably the Federal Reserve is worried about. And I have seen... economic analysts today and over the weekend bringing back the dreaded R word, the risk of recession, precisely because there are these frailties in the economy. The one sector that seems to be doing well that related to artificial intelligence and the data center build out and all of the economic activity related to that is also a little bit iffy.
And there's the question of, you know, how much would it take to knock us off course? And certainly, you know, it's not a foregone conclusion, but having something like a big oil shock can disrupt the economy. I knock on consequences of something like that, most recently during COVID.
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