Don’t Expect Gas Prices to Go Down Anytime Soon

Mr. Finley is an energy fellow at the Baker Institute at Rice University.

The cease-fire announced Tuesday night by President Trump has been greeted enthusiastically by oil traders, who quickly pushed crude futures contract prices below $100 a barrel. But don’t expect gasoline prices to fall sharply because the bombing might have stopped. Oil actually available today overseas can cost nearly $150 a barrel.

Iran insists that, for now, tankers transiting the Strait of Hormuz must continue to seek its approval. More important for prices, Iran’s leaders have made it clear that shipping traffic is likely to remain well below prewar levels.

This will extend the disruption that sent gasoline prices above $4 a gallon nationally in March. If prices remain at this level, American families will pay on average more than $1,000 more annually for gasoline according to my calculations, a significant extra expense for families already struggling with affordability — and a potentially influential factor in the fall’s midterm elections. A 21.2 percent increase in gas prices in March helped push the annual inflation rate to 3.3 percent, according to the Bureau of Labor Statistics.

The overall impact of the current price shock, and its aftermath, on the U.S. economy will not be as bad as the disruptions of the 1970s and 1980s, because the United States has become such a large oil producer. Our economy has also become much more efficient in using energy over the decades. But that is not much consolation for consumers who are shelling out more of their disposable dollars to drive to work or to shop.

The oil market still faces geopolitical, logistical and economic speed bumps. Before the war, some 20 million barrels of crude oil and refined products flowed through the Strait of Hormuz each day. That’s about 20 percent of the global supply, making this by far the largest supply break in the history of the world oil market, dwarfing the OPEC Oil Embargo, the Suez crisis and the previous Persian Gulf wars.

That lost inventory can’t be easily replaced anytime soon. There’s still a war on, too: Ukrainian attacks may further limit Russian oil exports — and keep pressure on prices.

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