Trump has locked in high gas prices for summer — and maybe longer

When the United States and Israel launched attacks on Iran in late February, resulting in a dramatic decrease in oil and natural gas production in the region, analysts hoped that a speedy resolution to the war could mean a quick return to prewar levels of energy production. But more than 100 days later, with no end to the war in sight, President Donald Trump and his allies have all but guaranteed high energy prices through the summer and beyond.

In the early days of the war, Trump insisted that the situation would be resolved in four to five weeks. As a result, energy industry analysts said that if Trump’s assertion proved true, the U.S. and global economies might be able to quickly return to the prewar status quo in terms of oil and natural gas prices.

The Iran war, however, is now well into its third month and the price of oil remains elevated well above prewar levels due to Iran’s closure of the Strait of Hormuz, even with the release of oil from strategic petroleum reserves around the world. There has also been significant damage to oil and natural gas infrastructure across the region, meaning that even an immediate end to the war would not result in a near-immediate ramp-up of production to prewar levels.

David Victor, the director of the Deep Decarbonization Initiative at the University of California, San Diego, said that in his analysis, even if the war ended tomorrow and the Strait of Hormuz was fully open, “we’ve already locked ourselves into disruptions that will probably last for at least three to six months.”

Prices, Victor explained, wouldn’t necessarily stay around their wartime highs for that whole time period. Rather, the end of the war would have a delayed impact on energy markets for the same reason the beginning of the war did: it takes time for such a change to work its way through global supply chains.

“When the war began, there was a huge amount of oil at sea already,” Victor said. “The Saudis and others knew that the crisis was on its way, so they started pumping more and putting more out into the market, and so it’s taken a while to work all that off.”

Victor pointed out that there were plenty of other long-term impacts the U.S. and global economies will be stuck dealing with beyond just high oil prices. Inflation in general has risen as a result of high fuel costs and Victor explained that there are signs of a broader economic slowdown. Certain sectors, like travel and tourism, have also been disproportionately impacted by soaring jet fuel prices and industries like electronics manufacturing have been seriously impacted by both the high cost of fuel and also the rise in the price of fossil fuel byproducts, like helium.

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Victor explained a longer war could still result in more significant demand destruction as well, which is when high prices or shortages force people to do with less of a commodity, and sustained high prices create an incentive for people to become more efficient. He used the example of the 1970s oil shocks as an example.

“We saw oil prices go up by a factor of three almost overnight, and it triggered economic recession,” Victor said. “There were a lot of other things going on in the economy as well, but it also triggered a massive push to find ways to remove oil from uses where oil had substitutes, a lot of that is done now in the global economy, and to become radically more efficient.”

Max Pyziur, the director of research programs at the Energy Policy Research Foundation, told Salon that the window for a quick recovery from an energy perspective has passed, but warned that there is another, potentially steeper, economic cliff looming.

In March, the International Energy Agency announced the release of 400 million barrels of oil from the strategic petroleum reserves of member countries. While a release of this scale takes time to play out and though different countries release oil at different rates, Pyziur said that he expects this release to run dry by the end of the summer, roughly 12 weeks from now. In the meantime, he explained, prices will likely remain elevated, but not in an unprecedented way.

“Once we get past these strategic oil reserves, we might be seeing $150 per barrel of oil. That’s when things become more acute,” Pyziur said.

Given the U.S.’s status as a wealthy nation and its large domestic production of oil, Pyziur said that he wouldn’t expect outright shortages here, though poorer countries and those with less domestic production may suffer from them. Rather, he expects high oil prices to manifest into even higher prices for gasoline, jet fuel and other petroleum products. After the end of the petroleum reserve released at the end of the summer, Pyziur said he would expect another economic inflection point in the next six to eight months, when acute shortages of other products that transit the Strait of Hormuz.

“There are already acute shortages in natural gas, and there are also shortages in fertilizer and helium. If this isn’t curtailed within six to eight months, you’ll see challenges,” Pyziur explained.