While the escalating tension in the Middle East brought supply security concerns in global energy markets to the highest level, the rise in oil prices increased gasoline prices in the USA.
The US and Israel’s operations against Iran and Tehran’s response to this situation directly affected the traffic in the Strait of Hormuz, one of the most critical transit points for world oil shipments.
As tanker traffic came to a halt in the region, approximately one fifth of the global oil supply was interrupted, while shipments from producers such as Saudi Arabia, Kuwait, the United Arab Emirates and Iraq were disrupted.
Some refineries partially halted production or had to replenish their inventories. The damage to the energy infrastructure in neighboring countries as a result of Iran’s retaliation further deepened the supply contraction.
The barrel price of Brent oil, which has risen around $30 since the outbreak of the conflict, reached over $114.
In his interview with CBS News yesterday, US President Donald Trump hinted that the war may end soon and said, “I think the war is largely completed. They have no navy, no communications, no air force.” made his assessment.
Trump claimed that they achieved the goals they initially predicted regarding Iran “much earlier” than the 4-5 week period.
Giving important messages regarding the Strait of Hormuz, Trump stated that he was “considering taking control of the Strait.” The barrel price of Brent oil, which approached 120 dollars yesterday, fell below 84 dollars after Trump implied that the war could end soon.
Making a statement at a press conference in Miami, Trump claimed that they had “destroyed” Iran’s nuclear and missile capacity and navy, and stated that “the war will end very soon.”
Trump said, “We are focused on keeping energy and oil flowing to the world, and I will not allow a terrorist regime to hold the world hostage and try to stop the global oil supply. If Iran tries to do this, it will be met with a much harsher response.” he said.
Scenarios were expressed that if military activity in the Middle East continued and supply disruptions continued, Brent oil could rise to the 150 dollar range.
GASOLINE PRICES INCREASED SIGNIFICANTLY
Analysts stated that every $1 increase in oil prices affects pump prices in the United States by approximately 2.5 cents.
According to American Automobile Association (AAA) data, the average price of gasoline in the USA increased by 16 percent compared to last week, reaching $3.48 per gallon.
The average price of gasoline in the country was $2.99 per gallon a week ago and $2.90 a month ago.
While fuel costs vary by state across the USA, California uses the most expensive gasoline. The average price of gasoline in California appears to be $5.20 per gallon.
California is followed by Washington state with $4.63 and Hawaii with $4.52. Nevada and Oregon are also among the states where the average gas price exceeds the $4 per gallon mark.
In Arkansas, Missouri, Oklahoma and Kansas, the average price of gasoline remains just below the $3 per gallon mark. The rise in oil prices is directly reflected in gasoline used in passenger vehicles, as well as diesel, which is important for the logistics industry, and jet fuel used in the aviation industry.
OIL PRICES ARE MONITORED IN TERMS OF INFLATION
The inability of tankers to exit the Strait of Hormuz leads to a contraction in crude oil supply worldwide, increasing price pressure. The increase in energy costs is also closely monitored in terms of macroeconomic balances.
There are concerns that inflation, which the US Federal Reserve (Fed) has been trying to reduce to its 2 percent target for a long time, may come under upward pressure again with this increase in the energy item.
Since fuel prices increase transportation costs, they also have the potential to increase the logistics costs of food and other basic consumer products.
Although the Consumer Price Index (CPI) in the USA increased by 2.4 percent annually in January, signaling a slowdown, the possibility of a long-term energy shock following tariffs increases the risk of inflation deviating from the targeted path.
Analysts state that if the conflict calms down in a short time, prices may decline within a few weeks, but the fact that the US does not accept any agreement other than “unconditional surrender” and that Bosphorus traffic is still risky despite promises of tanker protection, is an element of uncertainty in the markets.
THE EFFECT OF HIGH OIL PRICES ON INFLATION DEPENDS ON THE SIZE AND DURATION OF PRICES
American Enterprise Institute (AEI) Senior Expert Steven Kamin said in a statement to AA correspondent that the impact of high oil prices on inflation will depend on how high the prices remain and for how long.
Pointing out that, in general, shocks in oil prices will not lead to sustainable increases in inflation and inflation expectations unless they are balanced by monetary policy, as in the 1970s, Kamin said, “Therefore, when the Iranian war ends and oil prices fall, I predict that inflation will start to decline again in line with the 2 percent target. This forecast also assumes that there will be no new wave of customs duties.” he said.
Kamin emphasized that the standard prescription for an oil price shock that is expected to be temporary for the Fed is to take a step “neither tightening nor loosening.”
Pointing out that the Fed has already been under pressure recently, Kamin said, “While employment growth is falling, inflation is above the targets. Therefore, I think the current oil shock will strengthen the Fed’s tendency to keep interest rates unchanged in the next few meetings.” he said.
“THE LONGER THE CONFLICT LASTS, THE MORE THE PRICE PRESSURE WILL BE FELT”
In the analysis prepared by Oxford Economics economists Bernard Yaros and Sara Godfrey, it was stated that the US economy will remain resilient, but the increase in oil prices will further accentuate the separation between low- and high-income consumers.
The analysis pointed out that the events took place during a period when gasoline demand was low, but the longer the conflict lasted, the more households would feel the pressure of high pump prices.
The analysis also pointed out that high oil prices carry the risk of slowing down investment and employment due to real income shock and increasing uncertainty.
The analysis stated that despite the Iran conflict, the main prediction is that the Fed will restart interest rate cuts by the middle of the year, and that the Fed will consider the increase in inflation resulting from high oil prices as a one-off situation, but will be alert to any movement in long-term inflation expectations, which have been calm so far.
