With the rising tension in the Middle East, there has been a great deal of conjecture concerning what affect a conflict with Iran would have on oil prices. One thing is agreed upon. The price of oil will go up. The only question is by how much. The IMF recently concluded that a war with Iran could raise world oil prices by up to 30% . Others have claimed that the rise would be smaller. Even though Saudi Arabia has stated that it is willing to increase output to help offset any worldwide drop in production, the turmoil of a war with Iran would still unsettle markets and thereby cause prices to rise. People and governments are already bracing themselves for higher fuel prices. But what most people are unaware of is that any significant disruption in the oil markets would cause the price of nearly everything to rise. This is because modern life depends on oil.
Oil is an almost magical commodity. Its uses are many and varied. Take transportation for example. While most Americans will quickly associate oil with gasoline, they are often completely unaware that transportation requires oil for much more than gasoline. Not just cars, but jets, trucks, ships, and trains need oil if they are to move. The roads we drive on require petroleum if they are to be paved. The rubber and lubricants that are necessary for any motorized vehicle or machine all rely on oil. Even electric cars need tires and windshield wipers. Everything that moves is in one way or another dependent on petroleum. If you use any rubber gaskets in that windmill you are building or plastic coated wires in that solar panel you are installing, you are using oil.
Agriculture accounts for nearly 17% of the oil used in the U.S. According to Oil Drum, an industry web site, it takes roughly 500 gallons of oil to feed each and every American. If the price of oil goes up, the price of food will go up. Fertilizer would cost more. Tractors run on gasoline and will cost more to operate, as will
the trucks and trains that transport commodities to markets. Plastic requires oil. That means those plastic bags handed to you free of charge at grocery stores might no longer be free as the cost of making them goes up. It will cost more to heat and cool your home. It will cost more to mow your lawn. Airline, bus, and train ticket prices would go up. I could go on for at least another hour. The point is that even if you turn off your AC, park your car in the garage and ride your bike to work on wooden tires, you will feel the affects of higher oil prices.
What is worse is that the affects of higher oil prices would be felt most keenly by those least able to afford it. A dime or a quarter here and there is hardly felt by many Americans. But a dime and a quarter here and there at the grocery store would mean scratching items off the list for others. While a 10 or 20 cent rise in the cost of a gallon of gasoline
might be grumbled at by many Americans, it could push others
over the edge. If buses become more costly to operate cities would either have to raise prices or cut service which would hurt the poor who rely upon buses to get around. Buildings would cost more to heat and cool. Taxes might have to be raised because police cars, fire trucks, and ambulances would cost more to operate and roads would cost more to pave. Higher oil prices would ripple through our economy in ways most people would not imagine. In short, it would simply cost more to live in the U.S., even if you don't own a car.
Iran is the world's fourth largest producer of oil. Even if we don't buy oil from Iran, other nations do. Any disruption in production there will be felt. If oil production in Iran significantly drops, nations like China and India who are still buying much of their oil from Iran would have to buy it elsewhere. The law of supply and demand is second only to the law of gravity in governing modern life. Chinese imports of Iranian oil have gone up 32% in the last year. Any decrease in Iranian oil production would lead to a reduction in supply without affecting demand in the least. Without the option of buying their oil from Iran, China would have to buy it elsewhere. The increased demand for oil from other oil producing nations would inevitably lead to a spike in price. Even if Saudi Arabia and other OPEC nations are able and willing to step up oil production to fill any gap that would result from a war with Iran, prices will go up. In the best of times, the oil market is volatile. Speculation is the order of the day. If the King of Saudi Arabia catches a cold, the price of oil can rise. No one can say that a war with Iran will not cause the price of oil to go up. You simply cannot knock out the world's fourth largest producer and not expect the market to react.
Politicians may be willing and able to sell a war with Iran to the public, but how will they respond if the people want to know why they are being charged 25 cents for plastic bags that used to be free and the price of lettuce goes up by 50 cents. I would suggest that people who are advocating a war with Iran take a little time to investigate how important oil is to the U.S. economy beyond mere gas prices. America cannot run without oil. As the price of oil goes up, the cost of living in the U.S. goes up. Politicians and lobbyists might shrug off higher gas prices, more expensive groceries, and higher utility bills but many, if not most, Americans can't. If you think the economy is struggling now, just wait until the price of oil goes up by a dollar or two a barrel. When you consider how precarious the world economy is at the moment and consider that much of the world will not be able to absorb higher oil prices as easily as the U.S. can, you are flirting with economic and social calamity. If we are going to put so much of our economy, and the world's, on the line we had better be sure we have a very good reason. Speculations, projections, and hypothetical scenarios should be weighed against the likely consequences of a military strike. A military attack may or may not keep Iran from developing nuclear weapons, assuming that is their intent. It will definitely plunge the world into economic turmoil.
You can take the bus, ride the train, and turn the lights off when you leave the room if you like, but you will not escape the effects of more expensive oil. No one will. If we do attack Iran, Americans had better be prepared to tighten their belts. We should also make sure we only have to do it once.
