Will Oil Prices Ever Truly Return to 'Normal'?
The ongoing war involving the United States, Israel, and Iran has severely disrupted global oil markets, primarily due to the closure of the Strait of Hormuz, which handles approximately 20% of global oil and gas shipments. This disruption has introduced a persistent risk premium, driving up prices despite recent dips below $100 per barrel amid peace deal hopes. The article argues that the era of cheap oil may have ended, not due to resource depletion, but because of structural changes in supply chain reliability and increased costs. Beyond fuel, higher oil prices impact fertilizers, pharmaceuticals, plastics, and construction materials, exacerbating inflation and housing affordability issues. The global economy is shifting from efficient just-in-time logistics to costlier just-in-case strategies, requiring significant investment in storage and infrastructure. Consequently, governments face pressure to subsidize energy and manage larger budget deficits, while households confront a sustained increase in the cost of living. This analysis suggests that elevated oil prices are likely the new normal rather than a temporary anomaly.
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Will Oil Prices Ever Truly Return to 'Normal'?
The ongoing war involving the United States, Israel, and Iran has severely disrupted global oil markets, primarily due to the closure of the Strait of Hormuz, which handles approximately 20% of global oil and gas shipments. This disruption has introduced a persistent risk premium, driving up prices despite recent dips below $100 per barrel amid peace deal hopes. The article argues that the era of cheap oil may have ended, not due to resource depletion, but because of structural changes in supply chain reliability and increased costs. Beyond fuel, higher oil prices impact fertilizers, pharmaceuticals, plastics, and construction materials, exacerbating inflation and housing affordability issues. The global economy is shifting from efficient just-in-time logistics to costlier just-in-case strategies, requiring significant investment in storage and infrastructure. Consequently, governments face pressure to subsidize energy and manage larger budget deficits, while households confront a sustained increase in the cost of living. This analysis suggests that elevated oil prices are likely the new normal rather than a temporary anomaly.
Asia Times