Politics

Trump-Iran Spate May Raise Gasoline Prices, But Saudi Arabia Likely to Offset Pinch at Pumps

Americans are already starting to feel pressure at the pumps, with gas approaching or exceeding $3 dollars in many places. The average American drives over 15,000 miles per year, so rising gasoline prices are a hard hit on wallets. With the United States having revoked its agreement with Iran regarding nuclear weapons, gas prices might be in line for yet another price surge.

Why? Well, for one, Iran sits on the world’s fourth largest oil reserves, and unlike Canada, the oil deposits are easy to extract. Basic economics is premised on supply and demand. Demand for oil is high but prices have remained low because of ample supply. Sanctions may restrict supply.

(Credit: Facebook/Food 4 Less)

Of course, as many Americans are realizing at the gas pump, prices are rising as the oil market tightens. Crude recently topped $70 per barrel for the first time in four years. OPEC has been cutting back production, while turbulence in Venezuela and Russia has dampened the flow of oil from those reserves. If Iran’s oil is cut off, it will raise oil prices even further.

With sanctions being put back in place, it’s likely that some of Iran’s oil won’t make it to the market. How much, however, remains unclear. So far, Russia, China, and the European Union have balked at backing out of the agreement and are unlikely to install sanctions.

Iran’s oil output could drop by 500,000 barrels or more per day. The country pumped out an average of 3.8 million barrels in April. Back in 2016, when Iran was still under sanctions, the country was producing only 2.9 million barrels. With oil currently going for roughly $70, that’s a shortfall of roughly $203,000,000 per day.

It’s unlikely that Iran’s oil production will dip back under 3 million barrels per day, however. Unless China, Russia, and the European Union reinstall sanctions, Iran’s production is likely to remain above pre-nuclear deal production. Given that these parties were happy with the previous nuclear agreement, and indeed pushed hard for it, it’s unlikely that they will reinstall sanctions.

Regardless, any drop in production will hurt Iran’s already shaky finances. A drop in output could also increase oil and thus gasoline prices. Oil prices suffered turbulence amid the announcement, first falling dramatically but then rising. Since the initial shock, oil has trended up.

However, while some are screaming that the sky is falling, the impact on our wallets may be restrained by several factors.

Oil could continue to gain ground. However, Saudi Arabia has announced that they are willing to increase oil production in an effort to stabilize markets. While it’s possible that oil prices will continue to slowly gain ground, it’s also unlikely that gasoline will be surging to $4 or $5 dollars per gallon.

Saudi Arabia was adamantly against the nuclear deal with Iran. The two countries have been fighting proxy battles across the Middle East, vying for power and influence. Increased oil output has gifted Iran with more money with which to fund Shia governments and separatists across the region. It’s quite likely that the United States got assurances from Saudi Arabia that it will ramp up production in order to stabilize markets.

While Europe, China, and other countries have condemned the Unites States’ decision, key allies in the Middle East, including Israel and Saudi Arabia, have lauded the move. After Israel was hit with Iranian rockets, Israel launched a massive attack on Iranian targets scattered throughout war-torn Syria, hinting at new boldness.

The opinions expressed here by contributors are their own and are not the view of OpsLens which seeks to provide a platform for experience-driven commentary on today's trending headlines in the U.S. and around the world. Have a different opinion or something more to add on this topic? Contact us for guidelines on submitting your own experience-driven commentary.
Brian Brinker

Brian Brinker is a political consultant and has an M.A in Global Affairs from American University.

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