America's less energy-intensive economy braces against Iran war shock
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The U.S. has a key advantage in weathering the Iran war-triggered energy shock that was missing in previous episodes of overseas tumult: an economy that has become substantially less energy-intensive.
Why it matters: Higher prices at the gasoline pump, for jet fuel and for diesel will no doubt hurt. But in relative terms, both the average household and the economy as a whole have more capacity to weather the hit than in the past.
The big picture: Over recent decades, the share of U.S. economic activity has increased in service industries that demand less energy. And the sectors that do require large-scale energy resources have become more efficient.
- At the household level, wages have risen rapidly enough that gasoline and other energy sources are a smaller share of household expenses than in many previous energy shocks.
Flashback: Consider 1991, when the Persian Gulf War created an oil price shock that contributed to a recession that cost President George H.W. Bush his reelection. At the time, the U.S. used 6.1 million barrels of oil a day.
- Now, America uses 7.5 million barrels of oil a day. That's up 23% in 35 years. But GDP has risen by about 400% over that same span.
- Any given dollar of U.S. economic output, in other words, requires substantially less oil than it did a generation ago.
State of play: For the average American household, gasoline costs were about 4% of total expenditures in 2024, per the Labor Department's Consumer Expenditures. That ratio was 5.4% in 2008, when energy prices were surging.
- Or to look at it differently, the chart above of how many minutes of work it takes to buy a gallon of gas tells the story.
By the numbers: If gasoline prices hold at their current levels of around $4 a gallon and average hourly earnings stay on their recent trend (a bit over $37 an hour), a worker would need to work 6.3 minutes to buy a gallon.
- While that's up substantially from February (4.7 minutes), it is still much lower than in episodes in the not-too-distant past.
- At the peak of the Ukraine invasion in June 2022, this metric of gasoline affordability reached 9.2. minutes.
- In 2011 during the Libyan civil war and the broader unrest amid the Arab Spring, it took 10.2 minutes of work for a gallon of gas. The modern peak, however, was 11.3 minutes in the summer of 2008, when oil prices reached all-time highs but wages were much lower than they are now.
Zoom in: So what kind of gasoline prices would it take to reach new highs relative to Americans' wages?
- If gasoline kept surging to $6 a gallon — double the prewar level and up another 50% from today's prices — it would be 9.6 minutes of work at the average wage.
- To match the 2008 high, gasoline would need to reach $7.05 a gallon.
The bottom line: The energy price pain is real — but for now, it isn't as bad, relative to Americans' earnings and overall economic position, as in those other episodes of strife in the Middle East.
