NEW YORK (AP) — As crude oil prices soared above $110 a barrel on Monday, reaching a peak not seen since 2022, consumers are feeling the impact of the Iran war and its damage to global energy production.
Gas prices are on the rise, and many people will find some very immediate economic pain at the pump.
But you don’t have to drive to be impressed. Almost all goods—including food—that are bought and sold must travel from where they were produced. These costs will increase with the price of gas, diesel and jet fuel.
And rising oil prices will likely be a major factor in US inflation. As the war continues, some experts say, well, everything will be affected.
“The longer this goes on, the more significant the shock will be,” said Gregory Dako, chief economist at consulting firm EY-Parthenon.
Here’s how the rising cost of oil and gas could affect consumers as the war continues.
Petrol, diesel and jet fuel are made from crude oil. As the price of crude oil rises, so do the prices of widely used products, which power equipment, cars, buses, delivery trucks and airplanes.
Across the United States, motorists were paying an average of $3.48 for a gallon of gasoline on Monday, compared to $2.98 before the war. After the attack on Iran by America and Israel, the prices have increased by about 17 percent.
Prices vary by state. In California, drivers were paying $5.20, up 12% from a week ago. Some of California’s refineries have closed in recent years, leaving the state dependent on imports of gas and other refined products from Asia.
In contrast, the average price in Louisiana, which has oil production and refineries, was $3.04.
Rising oil prices are likely to push gasoline prices higher, and could be felt significantly in Asia and Europe, which rely more on Middle Eastern oil and gas than the United States.
The price of diesel – which powers 18-wheeler trucks – also rose on Monday: to $4.65 a gallon in the US, a 23% increase since the start of the war.
“It can’t be overstated how big a shock this is to the logistics, trucking, (agriculture) sectors,” Patrick DeHaan, petroleum analyst at GasBuddy, wrote on Monday.
The effective closure of the Strait of Hormuz, a waterway that transports a fifth of the world’s crude oil and liquid natural gas, has already caused problems for the shipping industry. Rapidly rising oil and gas prices will add to this burden.
Oil prices account for 50% to 60% of the total operating cost of shipping goods by ferry, according to Syracuse University supply chain professor Patrick Penfield, so higher oil prices have a huge impact on the industry.
“When oil prices go up, everything starts to slow down,” Penfield said. “So your ships slow down, your trucks slow down. People are less amenable to shipping things by air. And that really hurts the economy when oil prices go up.”
Fuel surcharges will also rise – as shipping companies want to pass on higher costs to their customers, ultimately making goods more expensive.
Heating your home and cooking with natural gas is also likely to cost more during the war.
According to Intercontinental Exchange data, European benchmark natural gas has risen 75% since the start of the war.
It can also affect the cost of products made from natural gas, such as petrochemical feedstocks. It is used in making plastic and rubber, as well as nitrogen fertilizer.
David Ortega, a professor of food economics and policy at Michigan State University, said the increase in oil prices likely won’t be felt immediately in U.S. grocery stores. But if oil prices stay high for a month or more, he said, “we’re in different territory.”
High oil prices affect the agriculture sector in two ways, Ortega said. They increase the cost of inputs such as fuel for farm equipment and fertilizers, which are derived from natural gas. They also increase demand for soybean oil, palm oil and other vegetable oils that can be used as a substitute for petroleum-based fuels.
But Ortega said the costs at the farm are only a small fraction of what consumers pay at the supermarket. A large part comes from the cost of processing and transporting food, which uses a lot of energy.
“Food gets to the grocery store in diesel, whether it’s by truck or by boat,” Ortega said.
If oil prices remain high, fresh food that must be shipped quickly could see prices rise more quickly than packaged food, which is less perishable, Ortega said.
U.S. oil prices have risen nearly 42% from prewar levels, from around $95 to $67 before the war, which could push U.S. inflation to 3% from 2.4% in January or 3% in the coming months, according to a rough estimate by economists at JPMorgan.
EY-Parthenon economist Dako estimated that the bump in gas prices could push monthly inflation up to 1% in March, which would be the highest monthly increase in four years. In this case annual inflation will be close to 3%.
“That in itself is quite a shock,” said Daco.
Mark Matthews, chief research economist and executive director of the National Retail Federation, said higher gas prices are likely to affect consumer spending, especially lower-income shoppers.
The average U.S. household pays about $2,500 a year, or about $50 a week, to fill its tank, he said. If customers are paying, say, $10 more per week, he said, their budget is definitely affected.
“How do they make up for it?” he said. “Going to a movie theater or going to a theme park or going out to eat — all of those areas are going to be … more likely to be underserved.”
Matthews expects retailers to absorb higher transportation costs for a while — as many have done with higher tariffs — before raising prices.
Italian Finance Minister Giancarlo Giorgetti warned of passing on higher energy costs to consumers, citing lessons learned from Russia’s invasion of Ukraine.
“We must act immediately to prevent energy prices from spreading to all consumer goods, as happened in 2022,” he told the G7 summit in Brussels on Monday.
Ed Anderson, professor of supply chain and operations management at the McCombs School of Business at the University of Texas, said carriers won’t immediately pass the costs on to customers.
“If the conflict is only short-term, companies will eat it,” he said.
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Rogaber reported from Washington. Associated Press reporters Nicole Winfield in Rome, Diane Durbin in Detroit and Ann D’Innocentio in New York contributed to this report.
