If tensions in the Middle East rise, and the Suez Canal loses most of its traffic because of risk to shipping due to attacks by Houthi rebels, oil prices will rise. The question is, by how much? The very few times crude oil has topped $100, geopolitical problems were the causes. The most recent was Russia’s invasion of Ukraine when oil moved to $105 in February 2022.
Oil prices above $100 would deeply wound the US economy. The level translates into gas prices just shy of $5, that would undermine consumer discretionary income, which is key to America’s GDP levels. For many people with homes heated by oil, it would significantly drain budgets during the cold months. Fuel prices extend to trucking and air travel. America’s large petrochemical industry would be affected as well. Some companies have benefited from low oil prices.
On an inflation-adjusted basis, oil was near $100 in 1973. Arab nations raised prices because of conflicts with Israel. Columbia University’s Center on Global Energy Policy wrote on October 17, 2023, the 50th anniversary of what is known as the Arab Oil Embargo, “What followed is seared into the American psyche: Fuel shortages across the country left drivers waiting for hours at the gas pump.” The incident helped trigger a recession that ran from 1973 to 1975.
Disruption of production from Nigeria, one of the world’s largest oil exporters, helped push oil prices above $140 in June 2008. The US economy probably would have cratered into The Great Recession anyway because of a severe crisis in the financial markets, but high energy prices worsened the problem.
Today, the question is whether a conflict between Israel and Hamas will cause the spread of military activity to other Arab countries, some of which are oil producers. About 10% of global crude production transits the Red Sea and Suez Canal, according to data from Kler, an analytics firm. These ships can reroute south of the Cape of Good Hope, adding a week or more to delivery times, but that does not solve the demand problem entirely.
One thing that characterized the major spikes in crude oil is that they happened very fast, as did the problems that caused them.
The Average American Has No Idea How Much Money You Can Make Today (Sponsor)
The last few years made people forget how much banks and CD’s can pay. Meanwhile, interest rates have spiked and many can afford to pay you much more, but most are keeping yields low and hoping you won’t notice.
But there is good news. To win qualified customers, some accounts are paying almost 10x the national average! That’s an incredible way to keep your money safe and earn more at the same time. Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 3.80% with a Checking & Savings Account today Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Click here to see how much more you could be earning on your savings today. It takes just a few minutes to open an account to make your money work for you.
Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 4.00% with a Checking & Savings Account from Sofi. Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.
You can follow him investing $500,000 of his own money on our top AI stocks for free.