Will Higher Gas Prices Derail the Recovery?

Gas prices are up again, and they could go much higher. Many Americans are asking the question, What will this do to the now promising economic recovery? It’s not a hard question — the answer in this case is the most obvious.

The price of a gallon of self-serve regular climbed to $4.599 in Los Angeles over the weekend, and could climb as high as $5 per gallon by April or May, according to Jeff Spring of the Automobile Club of Southern California. It doesn’t take someone with a doctorate in economics to figure out what that could do to the fledgling recovery.

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Higher gas prices hit commuters first — many must choose between using their gas for getting to and from work, and doing their shopping away from home. It’s not hard to guess which takes precedence, and the parking lots of many malls and shopping centers end up looking like the barren wastelands of a post-apocalyptic America on the weekends.

But thanks to a newfangled technology called the Internet, Americans can shop online with ease while saving money on gas, right? Wrong. Producers, manufacturers, and retailers still have to pay transportation costs. The last few fuel spikes haven’t pushed up transportation costs so as to be prohibitive, but they could this time around, if the event is protracted. And if the origins of this latest price hike truly lay with Iran, there is no telling how long it may last.

In late winter and spring, refineries usually claim that they are partly offline for maintenance, temporarily pushing up gas prices. This year, Iran has closed off shipments of crude to parts of Europe. Even though the U.S. doesn’t buy from Iran, the oil market is made global by the fact that, when one oil supply is lost, another must be sought, which means the U.S. will face heightened competition for limited resources.

Worries that Iran may try to shut down the Strait of Hormuz, through which roughly a fifth of the world’s oil supply must be transported, have also put upward pressure on gas prices. The worse the situation in the Middle East becomes, the more oil is stockpiled, pushing prices higher in a vicious cycle that could continue indefinitely. And should the situation escalate into a full-on war, it would rocket the world into an entirely new oil price territory, one that no one wants to explore.

So what is there to do? Politicians will complain and Congress will hold a hearing or two. We will hear, once again, that the U.S. must develop its own energy sources and that we must find new ways to move about, without fossil fuels. And then, hopefully, the crisis will pass, and the world will grow used to slightly higher gas prices, as has so often been the case in the past, while we work slowly to create more fuel efficient vehicles to counter the added costs from relying on finite resources that are slowly being depleted by an ever-growing global demand.

But that’s the best-case scenario. Only time will tell how still-unfolding events will play out.

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To contact the reporter on this story: Mark Lawson at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com