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In a primetime address to the nation Wednesday night, President Donald Trump cast the U.S. effort in Iran as a show of strength. But he left the timeline of the war\u2019s end conspicuously fuzzy, pledging the U.S. would hit Iran \u201cextremely hard\u201d in the coming weeks. Markets didn\u2019t love that ambiguity. Investors recoiled out of fears of an endless quagmire. But Trump tried to quell fears by downplaying the stakes in the Strait of Hormuz, insisting the U.S. doesn\u2019t depend on the critical trade choke point. \u201cThe United States imports almost no oil through the Hormuz Strait and won\u2019t be taking any in the future,\u201d he said. \u201cWe don\u2019t need it. We haven\u2019t needed it, and we don\u2019t need it.\u201d<\/p>\n
But as Nobel laureate Paul Krugman highlighted in a recent Substack post titled \u201c$4 Gasoline Is Less Than Half the Story,\u201d and as many other experts have also emphasized, the strait is essential to not only oil, but trade of some of the world\u2019s most vital resources. Diesel, jet fuel, fertilizer, and plastics are all resources that pass through the Strait of Hormuz\u2014and the war has everyone from oil execs to airline leaders to farmers bracing for fallout from its impacts.<\/p>\n
\u201cLess than half of U.S. consumption of petroleum products was gasoline,\u201d Krugman wrote. \u201cAdd in soaring costs for fertilizer and feedstocks for plastic, and the surge in gas prices, even though it dominates headlines, is well under half of the economic story.\u201d Those inputs are crucial for everything from the food on your grocery shelves to the shopping bags that carry them.<\/p>\n
The impact of rising gas prices isn\u2019t just in the headlines; it\u2019s flashing in giant digits at more than 150,000 gas stations nationwide, where prices have steadily climbed past $4 a gallon. While Trump claims the U.S. isn\u2019t reliant on the Strait of Hormuz, roughly a fifth of the world\u2019s oil and natural gas supply passes through it daily. And so do other resources critical to the American consumer. The U.S. is a top producer of gasoline. But even ignoring the reality of skyrocketing gas prices, a prolonged closure of the Strait of Hormuz could hurt Americans\u2019 pocketbooks in many other ways, according to Krugman.<\/p>\n
Even as the U.S. produces more oil than it consumes, it remains tethered to global energy markets where prices are set at the margin. That means disruptions in the Strait of Hormuz ripple through diesel, petrochemicals, and fertilizer markets, disrupting everything from shipping costs to food production.\u00a0<\/p>\n
More than half the battle\u2014petrochemicals, diesel, and fertilizer<\/p>\n
The price of polyethylene (PE), the most commonly produced plastic, has shot up about 30% since the start of the war. That\u2019s largely because about 84% of Middle East polyethylene capacity relies on the Strait of Hormuz for waterborne exports, according to a note from Harrison Jacoby, director of PE at ICIS. While the U.S. is a major exporter of PE, the rising price could mean higher costs for Americans. The commodity can be found in everything from your shopping bags and milk jugs to detergent bottles and your kid\u2019s toys. Dow CEO Jim Fitterling recently warned petrochemical shortages could fuel inflation through the rest of the year.<\/p>\n
Diesel prices have climbed by approximately $1.70 per gallon, roughly 70% more than the increase in gas prices. That raises the cost of shipping and doing business, according to Krugman. At the same time, jet fuel prices have climbed, and fertilizer costs have soared because the Middle East is a major producer of the natural gas feedstocks required to manufacture them. The price of urea, a critical component in fertilizer, has spiked as the war disrupts these essential supply chains.\u00a0<\/p>\n
But experts say that food prices would have to remain elevated for several months before consumers see a marked uptick in grocery prices. \u201cIf we\u2019re talking just a few weeks, very likely you\u2019re not going to see this show up in your grocery receipts,\u201d David Ortega, an agricultural economist and professor at Michigan State University, told Fortune in a recent interview. \u201cBut if we\u2019re talking a month or more, a few months, then it\u2019s a different story.\u201d<\/p>\n
The biggest loser: American consumers<\/p>\n
These rising costs are passed on to consumers through the prices of food and goods. And because of it, Krugman said, that puts Trump\u2019s desire for a Fed rate cut further out of reach.\u00a0<\/p>\n
\u201cThe diesel\/jet fuel\/plastics shock will lead, other things equal, to a more hawkish Fed\u2014and an elevated risk of recession,\u201d he wrote.<\/p>\n
Trump didn\u2019t make mention of commodities other than oil and gas during his speech. To reassure the country on that end, the president highlighted the U.S.\u2019s dominant role in global oil production. But even with the U.S.\u2019s vast domestic oil industry\u2014and Venezuelan oil and gas reserves, which Trump said the U.S. is discussing receiving \u201cmillions of barrels\u201d from\u2014Krugman highlights that there\u2019s no way American families could benefit from any gains in production.\u00a0<\/p>\n
\u201cWe don\u2019t have any mechanism in place to capture and redistribute those windfall gains,\u201d he said. \u201cSo ordinary U.S. families will bear the full brunt of the global oil shock even though America is a net oil exporter.\u201d<\/p>\n
#Paul #Krugman #smacks #Trump #speech #argument #gas #Hormuz #hit #Heres #hes #talking<\/p>\n","protected":false},"excerpt":{"rendered":"
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