WASHINGTON – The ongoing conflict in the Middle East is shaking the global economy as a major oil shipping route remains shut down.
Uncertainty over oil supplies is already pushing gas prices higher – and economists warn the ripple effects could spread much further.
Oil markets around the world reacted after Iran effectively stopped tanker traffic moving through the Strait of Hormuz, a narrow waterway between the Persian Gulf and the Gulf of Oman.
About 20 percent of the world’s oil supply passes through the strait every day, making it one of the most important energy corridors in the world.
With shipping disrupted, oil prices briefly surged past $100 a barrel before dropping. The spike is already being felt at the gas pump, with prices rising nearly 50 cents in some areas.
“Ridiculous. Crazy. Insane,” one driver said while filling up.
Another added, “Right now I’m already at $65 and still pumping.”
But it’s not just gasoline that could be affected.
Economists say when oil prices rise quickly, inflation often follows because energy costs influence transportation, shipping, and the price of everyday goods.
“Gasoline is vitally important for the machinery of our economy and for all of us as consumers, even if we’re not driving a car ourselves,” said Mark Hamrick, senior economic analyst at Bankrate. “Ultimately, we’re dependent on that gasoline as fuel to get things from point A to point B, and perhaps even point C.”
If inflation climbs again, it could also affect interest rates.
The Federal Reserve had been expected to cut rates this year, but renewed inflation pressure could delay those plans, impacting mortgages, car loans, and credit card rates.
“The immediate impact has been to send interest rates slightly higher,” Hamrick said. “The Federal Reserve governs short-term interest rates and isn’t prepared to do anything with its benchmark rate just now. But in the bond market, we have seen long-term yields rising as stock prices have dropped.”
Still, analysts note one important point: the United States is not heavily dependent on oil moving through the Strait of Hormuz.
Last year, the U.S. imported about half a million barrels of oil per day from Persian Gulf countries. That accounts for roughly 7 percent of total U.S. crude imports and only about 2 percent of overall U.S. petroleum consumption.
However, oil is traded on a global market, meaning disruptions anywhere can drive prices higher everywhere.
Some drivers say they are already adjusting their habits.
“I stopped at eight gallons because I couldn’t afford to fill up my tank,” one driver said.
Others worry prices could climb even higher in the coming weeks.
Analysts say the spike could prove temporary if tanker traffic resumes quickly. But if the conflict continues to keep ships from moving through the Strait of Hormuz, the world could face higher inflation and slower economic growth.
