In Threat To US Economy Gas Price Jumps
After a long decline in gas prices from mid-2022, although not in a straight line, the average price of a gallon of regular gas has started to rise, and the increase is fairly significant. According to Gas Buddy, “The national average is up 16.7 cents from a month ago to $3.26.” Its experts added, “Global inventories continue to tighten heading into a time of year when demand typically increases, while tensions in the Middle East again perk up between Israel and Lebanon, as Israel bombed Lebanon last week in retaliation for earlier rocket attacks.” Americans are used to low gas prices and the effects they have had on their household budgets. This is particularly true in times of high inflation and high interest rates.
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Gas prices hit $5 in June 2022, a few months after a global supply disruption as Russia invaded Ukraine. OPEC supply was not much affected at the time. The US production of crude oil increased then and continues to do so. Record US production activity has been the primary reason oil prices were capped below $90 most of last year and broke below $80 several times.
The geopolitical situation has changed in the Middle East after Israel invaded the Gaze Strip. That, by itself, has not altered the oil supply. However, Houthi rebels have attacked ships in the Red Sea and cut the number of ships that use the Suez Canal. Many of these have been rerouted south of Africa, adding as much as ten days to their journeys and fuel costs per tanker of as much as $300,000. Oil tankers are about 20% of the Suez traffic.
The Red Sea problem has just become a larger one. According to the AP, “A missile attack by Yemen’s Houthi rebels that damaged a Belize-flagged ship traveling through the Bab el-Mandeb Strait that connects the Red Sea and the Gulf of Aden has forced the crew to abandon the ship, authorities.” The US and UK militaries have attacked rebel positions, but not enough to blunt the attacks.
While there has never been any conclusive study about how gas prices hurt GDP, for homes where driving costs are a large part of budgets, rising gas prices do economic damage. Problems in the Middle East have caused a spike in gas prices, which could happen again. In the past, these spikes happened quickly. So, in some cases, their results were on discretionary income.
