Today, there is concern that Iran could attack Israel, which would escalate the already tense situation in the Middle East. Iran is the world’s seventh-largest oil-producing nation. Any interruption in its exports could drive crude prices above $100. When that happens, the average price of a gallon of regular gas in the US usually moves toward $5. $100 oil prices could hurt the US economy.
How serious is the situation? The New York Times reports, “An Iranian attack would heighten the risk of a wider conflict that could drag in multiple countries, including the United States.” It could also involve huge oil-producing nations, including Saudi Arabia.
Oil prices and $5 are not just unfounded forecasts. In June 2022, just after Russia invaded Ukraine, crude reached $120, and US gas prices reached $5. At that point, there was worry that exports from Russia, the world’s second-largest exporter, would be interrupted.
Several other factors have already pushed oil prices up. Among them is that China’s economy appears to be in the midst of a slow recovery. China is the world’s largest oil importer. Additionally, OPEC+, the consortium of several large producers, has kept its exports low.
The US is pumping oil at record levels. But, even at the current pace, it cannot replace sharp reductions elsewhere.
If oil prices reach $5, it will significantly affect the US economy. Discretionary income for many Americans who drive regularly will drop. Overall inflation will rise, which could cause the Fed to keep rates where they are now. This will hit parts of the economy that are already challenging to Americans, including home mortgage rates.
A broader war in the Middle East could be just days away, with it, a higher probability US gas prices will reach $5.
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