In short
The Journal Podcast Episode Notes
Episode Title
Will Gas Prices Go Up Because of the Iran War?
Episode Summary This episode discusses the implications of the recent conflict involving Iran, focusing on how it affects global oil prices and, consequently, consumer prices in the U.S. Host Jessica Mendoza speaks with WSJ reporters Rebecca Feng and Harriet Torry to analyze the situation in the Strait of Hormuz—a critical waterway for oil transport—and the potential economic fallout for consumers.
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Key Concepts
- Strait of Hormuz: A vital shipping lane where approximately 20% of the world's oil supply passes daily. The recent closure by Iran poses a significant threat to global oil distribution.
- Oil Price Volatility: Following the onset of the Iran conflict, oil prices surged sharply, with U.S. oil rising 7.6% and international benchmarks increasing over 8%.
- Impact on U.S. Consumers: Rising global oil prices could lead to higher gas prices, affecting inflation and consumer behavior across various sectors.
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Key Points Discussed
Opening Situation
- Iran’s Warning: Iran declared the Strait of Hormuz closed to all vessels, triggering immediate concerns among oil traders.
- Market Reaction: The announcement led to increased oil prices and heightened fears of a prolonged conflict, resulting in drops in stock markets.
Current Oil Market Dynamics
- Increased Prices: U.S. oil prices climbed to approximately $72.12 per barrel, with international Brent crude hitting around $79.11.
- Disruptions in Supply: Tankers are now stranded, with reports of attacks on vessels further escalating fears in the shipping community.
Broader Economic Implications
- Inflationary Pressure: Higher oil prices translate into increased transportation and manufacturing costs, which can push inflation higher.
- Consumer Spending: While gas prices represent a small percentage of overall consumer spending, fluctuations in gas prices significantly influence public perception and economic sentiment.
Expert Insights
- Rebecca Feng: Described the atmosphere among traders as tense, with many working overtime to assess the situation's impact on oil prices.
- Harriet Torry: Explained how historical oil price shocks previously led to recessions but noted that the current U.S. economy is less oil-dependent due to shifts like fracking.
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Consumer Concerns
- Gas Price Trends: The average gasoline price in the U.S. increased to $3.20 per gallon, which remains below previous spikes but is still concerning for consumers.
- Broader Cost Increases: A $10 increase in crude oil could raise gasoline prices by 10-15 cents per gallon, contributing to overall inflation.
Worst-Case Scenarios
- Continued Volatility: Analysts warn that sustained high oil prices could lead to increased inflation, complicating economic recovery.
- Potential Economic Growth for Energy Producers: Higher oil prices may benefit energy-producing companies, creating winners in a challenging situation.
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Conclusion The ongoing conflict in Iran is poised to impact global oil prices, with potential inflationary effects reaching U.S. consumers. While the immediate outlook is uncertain, uncertainties in oil distribution and geopolitical tensions indicate that gas prices could rise further, affecting economic sentiment and consumer behavior.
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Additional Resources
- Further Listening:
- Trump’s Shifting Reasons for War With Iran
- Trump's 'Donroe Doctrine' on Foreign Policy
- Newsletter: Sign up for WSJ’s free What’s News newsletter for ongoing updates.
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Episode Credits
- Host: Jessica Mendoza
- Guests: Rebecca Feng and Harriet Torry (Wall Street Journal)
- Production: Co-production of Spotify and The Wall Street Journal
Contact and Feedback For questions or feedback on the episode, visit the official [WSJ Podcast page](https://www.wsj.com/podcasts).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOThe Strait of Hormuz and Oil Supply
0:45 to 2:30
Exploration of the implications of the Strait of Hormuz closure on global oil supply.
“That was like the initial warning, seemingly from Iran not to enter the strait.”
Immediate Effects on Oil Prices
2:30 to 4:00
Discussion on the spike in oil prices due to the conflict and market reactions.
“Welcome to The Journal, our show about money, business, and power.”
Trader Insights and Market Dynamics
5:01 to 7:40
Insights from oil traders on market dynamics and the impact of the Iran conflict.
“So yeah, it's usually a very, very busy port.”
Energy Infrastructure Attacks and Repercussions
7:40 to 11:01
Details on attacks on energy infrastructure and their global repercussions.
“Like, I remember seeing the announcement from Qatar Energy and then at the same time seeing, like, European gas prices shot up by 50 percent.”
U.S. Consumers and Oil Price Sensitivity
11:01 to 13:00
Analysis of how rising oil prices affect U.S. consumers and the economy.
“Because at Hilton, hospitality feels like...”
Understanding Gas Price Dynamics
14:05 to 15:16
Explore how gas prices affect consumer spending and inflation.
“is at$3.20, 31 cents higher than a month ago, according to AAA.”
Impact of Oil Prices on the Economy
15:16 to 17:14
Learn how fluctuations in oil prices can influence overall economic conditions.
“Also, it's not just about the price of gas at the pump.”
Potential Outcomes for Consumers
17:14 to 18:58
Discuss the mixed effects of rising gas prices on different sectors and consumers.
“but is there any upside to higher oil prices?”
Uncertainty in the Market
18:58 to 19:36
Understand the unpredictability of gas prices and its implications for inflation.
“and in some cases very far above that target.”
Transcript
Automatic transcript. May contain errors.0:05Harriet Torry:In the hours after the U.S. and Israel began striking Iran on Saturday, a message was broadcast to ships in a critical waterway. From now on, all navigating through the Strait of Hormuz is forbidden. No ship in every type is not allowed to pass from the Strait of Hormuz till next notice.
0:25Rebecca Feng:They're saying that the Strait of Hormuz is closed and basically warning that the vessels not go through.
0:33Harriet Torry:A Strait of Hormuz from now on is banned for all ships. Roughly a fifth of the world's oil supply moves through the Strait of Hormuz on a normal day. It's the main way Saudi Arabia, Kuwait, Iraq, the UAE and Iran get oil out to the rest of the world. Here's our colleague Rebecca Fung.
0:52Rebecca Feng:That was like the initial warning, seemingly from Iran not to enter the strait. And what was your initial reaction when you heard the warning? Very, very bad. That was my reaction, because closing it is like the doomsday scenario. So my first reaction is like, oh no, here we go.
1:15Harriet Torry:After ships were banned from moving through the strait, much of the world's oil supply became stuck around the Persian Gulf.
1:21Rebecca Feng:Since the conflict began over the weekend, oil prices have jumped. Yeah, it's very dramatic.
1:27Harriet Torry:Oil and gas prices spike today. U.S. oil traded 7.6 percent higher at$72.12 per barrel, while international standard Brent was up 8.6 percent at$79.11 per barrel. Growing fears of prolonged war, sending the stock market tumbling and oil prices surging.
1:51Harriet Torry:If things don't resolve soon in this conflict, what could it mean for the world oil market and the global economy?
1:59Rebecca Feng:It could be pretty disastrous. Oil prices are massively important for the global economy. And it has knock-on effects on consumer behavior and everything because it affects prices at the pump. So if that goes up, then transportation, manufacturing, logistical costs all go up, and inflation goes up as well.
2:30Harriet Torry:Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, March 4th.
2:43Harriet Torry:coming up on the show will the iran war show up at your gas pump
2:59Harriet Torry:this episode of the journal is presented by intuit enterprise suite If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite, the AI native ERP is here. From the makers of QuickBooks. Learn more at intuit.com slash ERP. This episode is brought to you by Claude from Anthropic. Anthropic just made a commitment. No ads in Claude. That matters because ads in AI aren't like ads elsewhere. On social media, they sit next to your content.
3:41Harriet Torry:In AI, they could be woven into it. To keep you engaged rather than helping you think something through or getting the tough work done. See why the world's best problem solvers choose Claude as their thinking partner. Try it free at Claude.ai slash the journal.
4:03Harriet Torry:Rebecca says that since the Iran conflict broke out, she's been talking to a lot of nervous oil traders and brokers.
4:10Rebecca Feng:I was talking to this one trader and then he was like, oh, I went into the office at 11 p.m. on Sunday. I stayed all the way until Monday night because he just needed to be there. And they're like, when I was looking for people to comment on this, it was never easier to find people who are working.
4:30Harriet Torry:Traders are working nonstop because they're trying to figure out just how bad this conflict and the closing of the Strait of Hormuz could be for oil prices.
4:38Rebecca Feng:On a typical day, that strait handles 20 million barrels a day, 20 % of the world's daily oil supply. So on a typical day, it's very busy. Basically, like in peacetime, there are around 140 daily crossings on average at that strait. And then some of it are like massive oil tankers. These are like skyscraper-sized oil tankers. So yeah, it's usually a very, very busy port.
5:07Harriet Torry:But after that radio message went out to ships in the area, traffic through the strait started to slow. Oman's Maritime Security Center says an oil tanker has been attacked in the Strait of Hormuz.
5:21Harriet Torry:On Sunday, Iran attacked three commercial vessels around the Strait of Hormuz, killing one seafarer.
5:28Rebecca Feng:You know, after Sunday, traffic further slow just because that's like very, very big warning to anyone wanting to pass through the strait, which is the message is basically like, don't do it because we could attack you.
5:41Harriet Torry:— Then on Monday, several international insurers said they were canceling some coverage for ships sailing near Iran — at least temporarily — to negotiate at higher prices.
5:52Rebecca Feng:— It's basically like a move that they're canceling these specialized policies that cover vessels in high-risk waters. And basically, if you want to sell, then you will sail without insurance. So that just basically slowed traffic to a trickle.
6:08Harriet Torry:Iran's Revolutionary Guard has since threatened ships that attempt to pass through the strait. A senior official with Iran's Revolutionary Guards said the strait is closed, and if anyone tries to pass, Iran will, quote, set those ships ablaze.
6:22Rebecca Feng:So I think that's as official as it gets. Ships are afraid, so effectively it's paralyzed.
6:29Harriet Torry:As of this morning, at least eight tankers have been attacked near the strait.
6:38Harriet Torry:President Trump is trying to help get ships through the strait. On social media yesterday, he said the U.S. would provide insurance for ships. And he said if necessary, the U.S. Navy would begin escorting tankers through the strait, quote, as soon as possible. Beyond slowing the distribution of oil through the Strait of Hormuz, the conflict is also affecting the production of oil and gas. On Monday, Iran directly attacked its Middle Eastern neighbors, hitting some important energy infrastructure. There was a hit in Qatar. An attack on the Ras Lafhan export hub.
7:13Rebecca Feng:This is a major, major part of Qatar's economic apparatus. These are serious disruptions to the energy supply globally. So Qatar actually halted production of liquefied natural gas after intercepting two Iranian drones targeting its energy facility in Ras Lafhan. And that had a very, very immediate effect on natural gas prices in Europe. Like, I remember seeing the announcement from Qatar Energy and then at the same time seeing, like, European gas prices shot up by 50 percent. So that was quite scary. So it was immediate. It was pretty immediate.
7:54Harriet Torry:That same day, Iran hit Saudi Arabia.
7:57Jessica Mendoza:The latest Iranian drone struck an Aramco oil refinery in Saudi Arabia. There is another drone attack on Saudi Arabia, which caused a fire and kind of forced the state oil company there, Saudi Aramco, to halt productions at a refinery in Rastanoura oil complex.
8:17Rebecca Feng:This one is located on Saudi Arabia's Persian Gulf Coast. And it's sort of the kingdom's core departure point for crude exports to Asia and like just central to global oil supplies. So it's also kind of like this cornerstone of the kingdom's energy sectors.
8:37Harriet Torry:Rastanur's loading terminal and refinery complex was targeted by an Iranian drone again today, but didn't cause any damage, kingdom officials said. According to Wall Street Journal reporting, Saudi Crown Prince Mohammed bin Salman had set attacks on the kingdom's oil facilities as a red line.
8:54Rebecca Feng:Previously, Saudi Arabia has always kind of exercised pretty strict restraint when it comes to entering conflicts. So now it's just been pushed into, like, closer and closer to direct military retaliation against Iran.
9:10Harriet Torry:Saudi Arabia has not directly retaliated thus far. What is the status overall now of energy production and movement in the Middle East?
9:21Rebecca Feng:When it comes to the Strait of Hormuz, I think the latest we've got there It's just that currently there are more than 3 ,000 vessels stuck in the Persian Gulf ports, kind of waiting to move across the strait. That's not good.
9:36Harriet Torry:What about Qatar and Saudi Arabia? What do we know about the extent of the damage to their energy sites?
9:42Rebecca Feng:That's unclear. The two sites being hit, none of them have started production again because they all just halt production. We haven't got, like, a message saying that they restart. And I guess it depends on the degree of the damage. it might take a while for them to come back to 100 % production. So it just seems to me that there will be supply disruptions and supply shortage, frankly, when it comes to global oil and gas supply.
10:13Harriet Torry:As of today, Brent crude prices, the global benchmark for oil, are at$81 a barrel. Before the conflict began, they were at$73.
10:23Rebecca Feng:So far, Brent prices jumped quite a bit. But to be honest, like, not as much as analysts had previously said.
10:32Harriet Torry:Still, the traders and brokers Rebecca talked to are worried about the future.
10:37Rebecca Feng:So now, like, I think the oil market is definitely scared. And everyone's just waiting for further developments like everyone's glued to their phone, watching the news and everything.
Read the full transcript
10:49Harriet Torry:So how concerned should consumers be about rising prices? That's after the break.
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12:06Harriet Torry:Can you just introduce yourself, please, and tell us what you cover?
12:10Jessica Mendoza:Yeah, my name is Harriet Torrey, and I cover the U.S. economy.
12:13Harriet Torry:I called up our colleague Harriet to understand how the war in Iran is affecting U.S. consumers. Americans no doubt have a lot of questions about the Iran conflict, but a big one is, is this going to make life more expensive? So how much does the global price of oil factor into affordability here?
12:34Jessica Mendoza:It's definitely an issue. It's not as big an issue as it might have been in the past. In the 1970s, there were two major recessions that were caused in part by oil price shocks. But since then, you know, the U.S. economy has changed a great deal. It's much less dependent on oil from the Middle East. The U.S. is actually now a net energy exporter. That's largely thanks to fracking. So the U.S. is technically energy independent. But at the same time, you know, the price of oil is global. This is a global market. And when there are constraints on oil supply, it does have an impact.
13:07Harriet Torry:That impact on prices is likely to be felt more in Asia and Europe, which are more dependent on energy from the Middle East. How quickly does oil prices jumping up in the global market affect gas prices in the U.S.?
13:23Jessica Mendoza:It's a good question because, you know, of course, it takes time for, you know, a barrel of oil to arrive at a refinery, get cracked into gasoline or diesel and then, you know, enter the U.S. supply chain. So it shouldn't happen overnight. But a big part of oil prices, of course, are sentiments. So when we do see these big upsets in oil supply in the Middle East and, you know, these concerns about shipping lanes not being open and facilities going offline, that does cause a sentiment shock. But, you know, economists say that what we're seeing now is probably just the outset, like it will take time for all of these different factors to work their way through oil prices.
14:04Harriet Torry:As of today, the average price of gasoline in the U.S. is at$3.20, 31 cents higher than a month ago, according to AAA. That's still well below the surge that happened at the beginning of the war in Ukraine, which was the last major spike. Then, the average price of gas across the U.S. was over$5.
14:26Harriet Torry:Still, Harriet says Americans are very attuned to the price of gas.
14:31Jessica Mendoza:People spend more than 30%, you know, about a third of their income on housing, and they spend about 14 % on food. They only spend about 3 % on gas. It's actually a very small amount of your monthly spending, you know, across the board. And then perhaps another 3 % will be spent on other energy services like electricity and natural gas and so on. So this is actually quite a small part of Americans' day-to-day spending, but because it's such a visible part, people are just very aware of gas prices because, you know, you drive around all day and you see them everywhere you go. So when they go up, you think, oh, yeah, OK, why is that happening?
15:08Jessica Mendoza:And swings in gas prices do have an impact on the way that people feel about, you know, their ability to continue spending.
15:16Harriet Torry:Also, it's not just about the price of gas at the pump. The cost is baked into basically all consumer goods.
15:23Jessica Mendoza:So when gasoline prices increase, that has an impact on inflation. You know, analysts estimate that a$10 increase in the price of a barrel of crude oil will push up gasoline prices by 10 or 15 cents a gallon. And then economists say that a 5 % increase in oil prices will raise year-over-year inflation measures by about 0.1 percentage point. So these were all quite small-sounding increases in isolation. But when they start to pile up, they can add up.
15:56Jessica Mendoza:Can you give some examples of that? So for instance, let's say, you know, most food is driven around in trucks and shipped in trucks. And if we see a big increase in the price of diesel or in the price of gasoline, the cost of shipping will increase. And that will, of course, be reflected in higher prices at the grocery store. So grocery prices go up or higher fuel prices often has a big impact on airline ticket prices. So maybe we'll see an increase in that. So the longer that this lasts, the more it can sort of spread through the economy. and push up prices overall. So what is the worst case scenario here?
16:31Jessica Mendoza:Well, the analysts that I've spoken to about this have said that probably the worst case scenario is if we continue to see a huge amount of volatility, you know, oil prices go up to sort of$100 a barrel. That would really hurt American consumers. We would see a big increase in inflation. That would make life more difficult for the Fed. Certainly rate cuts would be perhaps, you know, a more difficult proposition in that circumstance. and inflation has been very difficult sort of tiger to try and vanquish these past couple of years. So that would be tough. And the concern is that a big oil price shock and inflation could really hurt the U.S.
17:09Jessica Mendoza:economy and hurt consumers and hurt the labor market.
17:13Harriet Torry:Harriet, you're painting what could be a pretty dim picture for the economy, but is there any upside to higher oil prices?
17:20Jessica Mendoza:Well, so there are always winners and losers from these types of situations. So for consumers, really, there's not much upside at all for prices going up. But on the flip side, if you're an energy producing company, let's say in Texas or in New Mexico, then you're in a situation where this is beneficial for those companies there. They can sell their products at higher prices. And so there's that impact that, you know, maybe this helps economic growth. So it's sort of a double-edged sword for people in America. U.S.
17:52Harriet Torry:Secretary of State Marco Rubio told reporters on Capitol Hill on Monday that the U.S. had plans to offset oil price increases. There is a plan in place. We anticipated this could be an issue. And Secretary Wright and Besson will begin to roll out those steps starting tomorrow to mitigate, to mitigate against the impact that could happen. On Tuesday, in a bilateral meeting with German Chancellor Friedrich Merz, President Trump was asked about the war's economic impact. Maher said that the war is, quote, damaging our economies. Trump responded. If we have a little high oil prices for a little while, but as soon as this ends, those prices are going to drop, I believe, lower than even before.
18:37Harriet Torry:Trump has been talking a lot lately about making life more affordable for Americans. Did that job just get harder with this war?
18:45Jessica Mendoza:It's hard to say at this point because we don't know if this jump in gasoline prices is going to be sustained or if this might just be a short-term blip that, you know, fades. It is obviously something that the administration is concerned about. American consumers for five years have been dealing with inflation that's been above the Federal Reserve's 2 % target and in some cases very far above that target. And it's still not entirely back down. Prices haven't gone into reverse. they are still much, much higher than they were a few years ago. And many people just feel the pain. But, you know, it is a difficult situation because really nobody knows how this is going to play out.
19:36Harriet Torry:That's all for today, Wednesday, March 4th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Benoit Faucon, Georgi Konchev, Costas Paris, and Summer Saeed. Thanks for listening. See you tomorrow.
19:55Harriet Torry:The Future of Everything is the Wall Street Journal's flagship live event. Returning to New York City May 4th through 5th. Be there as CEOs, policymakers, and innovators sit down with our journalists to answer the most pressing questions of the day. From finance, tech, and economic policy to sports, streaming, and style, We're bringing together today's most compelling newsmakers for two days of conversations on what's ahead. Listeners of this podcast can access exclusive discounted rates by visiting wsj.com slash future. That's wsj.com slash future.
From the publisher
The conflict with Iran has raised energy prices and sent shock waves through markets. WSJ’s Rebecca Feng explains what’s happening in the Strait of Hormuz, an Iran-controlled waterway through which a fifth of the world’s oil supply typically travels. And WSJ’s Harriet Torry breaks down what this could mean for consumers and inflation in the U.S. Jessica Mendoza hosts.
Further Listening:
- Trump’s Shifting Reasons for War With Iran
- Trump's 'Donroe Doctrine' on Foreign Policy
Sign up for WSJ’s free What’s News newsletter.
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