With gasoline prices still averaging over $4 per gallon and the rate of inflation rising to a three-year high on the back of rising energy costs, consumers do not want to hear that things could be a lot worse. They probably have no stomach for the argument that the economic landscape that prevails today, months into a full-scale war with Iran, is actually a marvel of engineering and policymaking over the last decade — one that allows the U.S. to pursue its interests abroad with vigor.
But that’s all true, and I’ve never been much for fashion.
As recently as 2019, the expert consensus was that even a brief throttling of maritime traffic through the Strait of Hormuz would send oil prices skyrocketing well beyond their current cost. In the aftermath of a brazen Iranian drone attack on Saudi Arabia’s Aramco oil facilities, Saudi Arabia’s Crown Prince Mohammed bin Salman warned that all-out war with Iran could increase Brent crude prices to “unimaginably high numbers.” How high? Try $200–$300 per barrel. Even a “partial blockade of the Strait of Hormuz,” Forbes contributor Ed Hirs wrote in 2018, “would lead to a $175 a barrel price increase, for a total of $245 per barrel.”
That consensus prevailed at the outset of Operation Epic Fury, too.
At the beginning of April, Axios conceded that Brent crude prices had spiked to $120 per barrel, below the high watermark they reached at the outset of Russia’s war of conquest in Ukraine ($139 per barrel in March 2022). But that price spike “could look modest” if traffic in the strait remained constricted “for a long time.”
“In the next several weeks, you’re going to see the physical reality of oil shortfalls catching up to market trading activity,” Columbia University Dean Jason Bordoff told Axios energy reporter Amy Harder in a piece that warned us to “get ready for $200” oil.
Industry experts continue to warn that Brent could rocket up from its current $93 beyond the $200 mark, but that would be hard for Iran to sustain. “A credible threat from missiles, mines, or fast attack boats is all it would take for tanker insurers to stop coverage, which would halt tanker traffic,” read one oil industry analyst’s report to his clients. “However, we believe that Iran would not be able to keep the Straits shut for longer than two weeks, due to a U.S.-led military response.”
The ongoing, although largely covert, American military response to Iran’s attempts to close the strait is only part of the story. The other part is the degree to which the revolution in domestic U.S. energy production has insulated the country.
Reuters reporters are taking notice. “U.S. fortunes began to change after 2010, when oil and gas output from its shale formations soared, first making it the world’s top gas and then the world’s top oil producer,” a Thursday dispatch read:
Crude and liquids output in the United States has nearly tripled to about 22 million bpd since 2000. Saudi crude and liquids output has largely fluctuated between 10 million and 12 million bpd depending on OPEC quotas between 2000 and 2026. . . .
Global oil demand grew to 104 million bpd last year from 87 million in 2010, meaning the lion’s share of the global growth of the past 15 years has been mostly met by the U.S. oil boom.
The war has imposed severe strain on America’s reserves of refined products like gasoline. And high energy prices have contributed to a global demand crunch, both abroad and at home. But for all the financial pressure the energy-cost spike is putting on consumers today, it would have been far worse a decade ago.
Back then, the United States was a net energy importer. Fracking remained a nascent technology. It exported a paltry amount of liquefied natural gas and sent an even smaller amount of refined products overseas. That was a world in which Iran could execute attacks on U.S. soldiers, sponsor active terrorist networks in Europe, and develop a nuclear weapons program, secure in the knowledge that the United States would never dare attack it on its soil.
It’s a different world, indeed.