Why there is no "oil shock" this time around
Add Axios as your preferred source to
see more of our stories on Google.
The U.S. economy tripled in size over the past half century, however, oil consumption barely grew.
Why it matters: We're far less dependent on oil than in 1979, when a crisis in Iran caused widespread disruption in the U.S.
Flashback: There were long lines for gas, and the situation was so dire that it pushed Americans to drive smaller Japanese cars, at least for a time.
Between the lines: There was lots of hand-wringing over U.S. dependence on foreign oil back then, which surely President Trump remembers. He has now taken steps to topple leadership in two oil-producing countries.
- Although gas and oil prices are rising, it's possible that over the long term the administration's attacks on Iran and Venezuela could "neutralize two oil exporters who have regularly been the cause of supply disruptions in recent generations," as Greg Ip writes in the Wall Street Journal.
Where it stands: Yet the U.S. is no longer as dependent on foreign oil. Today the U.S. is the largest producer of oil in the world. And Iran's share of world oil production has decreased.
- The situation has arguably given Trump an opportunity to take on Iran.
State of play: The price of oil has increased in recent days, rattling markets and threatening to spike prices at the pump, putting pressure on Trump.
- The White House said Tuesday it would step in as an insurer of last resort, and to offer military escorts to oil tankers, to get shipments moving in the Middle East, sending oil prices down, but Brent Crude is back over $80.
The big picture: Perhaps more crucially, the economy needs less oil now.
- The so-called "oil intensity" of the economy — looking at the ratio of oil consumption to economic growth — has declined more than 70% since 1979, as economist Paul Krugman noted this week.
Zoom in: Gas mileage on cars is much more efficient now, cheap natural gas has replaced oil in areas like home heating, and renewable energy is "starting to make a dent," Krugman explained.
- You can see the U.S. advantage by looking at European natural gas prices, which are up 40%, after Qatar shut down production amid the conflict.
- The U.S., meanwhile, benefits by having its own natural gas supply.
Reality check: If the White House effort to keep the Strait of Hormuz running fails, and shipments don't move, oil prices could spike further.
- The worst case is storage tanks could start filling to capacity, as countries are unable to move fuel, which could lead to a shutdown in oil production.
- "That's the risk," Rebecca Patterson, a senior fellow at the Council on Foreign Relations, tells Axios.
