The Iran war has spiked oil prices around the world, risen prices at the pump and driven speculation about inflation as the Trump administration pleads with other nations to help reopen the Strait of Hormuz — a choke point for nearly 20% of the world’s crude oil supply.
What all that means for Wyoming depends on your perspective, according to University of Wyoming Associate Professor of Economics Rob Godby. While higher oil revenues may offer a boon to local producers and state government coffers, he said, the broader and likely longer-lasting implications for consumers and the economy are not good.
For Wyoming consumers, the average price-per-gallon at the pump has jumped 28% from $2.69 a month ago to about $3.45 on Monday, according to the AAA Fuel Prices website.
“If you are a consumer,” Godby said, “clearly gasoline prices increasing by 30% to 40% is not so much a benefit, and the benefit to the state’s savings accounts will be cold comfort while you are sitting next to the gas pump watching the price increase at a faster rate than you’ve seen in a few years.”
There are the myriad “secondary effects,” Godby noted, like shipping costs that tend to raise the cost of just about everything that Wyomingites consume, as well as the cost of local services such as trash pickup. More broadly, some economists warn that a prolonged oil market disruption threatens to fuel global and national inflation.
“From a national perspective, concerns of higher inflation mean interest rates will be higher for longer, and that will have continuing negative effects on housing markets and other interest sensitive sectors,” Godby said. “The other problem is fuel prices tend to take a lot longer to come back down than they do to go up, which means consumers will pay a higher price for fuel even after oil prices come back down, even if this is a short-lived conflict.”
A boon for industry and state coffers?
Though the Trump administration’s domestic policies have inspired renewed optimism for boosting the flow of oil and natural gas, producers in Wyoming — who generally, for obvious reasons, favor higher prices — aren’t exactly toasting the global market disruption due to the war in Iran.
As the price per barrel rises, producers tend to respond by pushing their drillbits down, and refiners crank open their spigots — all eager to chase the dollars. And right now, the industry is looking at a market that has jumped from about $60 per barrel of oil in January to nearly $100 today.
But the reason for it — an escalating war in the Middle East — is a dramatic shock to the system rather than a predictable market trend that inspires confidence, according to industry insiders.
“There is a lot of upheaval in the oil market right now, which can create a lot of uncertainty for producers,” Petroleum Association of Wyoming Vice President and Director of Communications Ryan McConnaughey told WyoFile. “Dramatic increases in prices bring in additional revenues to producers, and to the state in the form of additional tax revenues. But high prices can also suppress economic activity, which in turn reduces demand.”
Fears of a consumer retraction at the gas pump — where the national average Monday had jumped 27% from $2.93 per gallon a month ago to $3.72 — haven’t come to fruition yet. In fact, domestic gasoline consumption trended upward immediately following the U.S. and Israel-led bombings in Iran, according to the Energy Information Administration’s analysis of gasoline supplies.
Some energy analysts have cautioned that the uptick is simply a seasonal increase heading into the spring, as well as a typical reaction to a global event that’s likely to have lasting impacts.
Though Wyoming oil producers will undoubtedly want to respond, there’s only so much they can do to capitalize, according to Godby.
“Producers have very little immediate capacity to increase production, and a war is too uncertain to make a bet on investment and expansion of facilities,” he said. “I expect this will not be a benefit to the Wyoming economy in terms of a production effect.”
If Wyoming oil producers could have their way, they’d choose less chaotic circumstances that sustain a robust $80 per barrel of oil, “where operators are incentivized to increase drilling while not triggering the drain on the economy,” PAW’s McConnaughey said. “Operators tend to have a longer time horizon when it comes to investment decisions and consider oil price forecasts, the regulatory environment, geology and many other factors.”