The most important economic question about Iran is one Trump can’t answer
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The question on everyone’s mind this week seems to be some variation of “When will the Iran war be over?” Americans don’t see the point, and their anger is only growing as the death toll rises and the economic damage deepens.
It’s a fair question, especially as the White House and Pentagon have been wholly unable to articulate their endgame. But the question that matters more to everyday Americans is a narrower one, and one the White House has even less control over: When will the Strait of Hormuz reopen?
The waterway between Iran and Oman has been effectively closed for 19 days, choking off 20% of the world’s oil supply and helping push gas prices in America up 86 cents — a 29% jump, one of the sharpest spikes on record.
The only way to get oil prices in check is to get hundreds of idled tankers moving through the strait again. That’s something most American allies have so far refused to help with.
And President Donald Trump’s comments on the strait suggest he might not fully grasp how global commodity markets work. On Wednesday, the president mused on social media about abandoning the Strait of Hormuz and letting the “countries that use it” be responsible for securing it. It’s an odd suggestion, considering the president has been cajoling allies to send warships in an effort to calm global oil markets.
The post read: “I wonder what would happen if we ‘finished off’ what’s left of the Iranian Terror State, and let the Countries that use it, we don’t, be responsible for the so called ‘Strait?’ That would get some of our non-responsive ‘Allies’ in gear, and fast!!!”
While it’s true most oil consumed in the US doesn’t pass through the strait, the US navy has historically secured safe passage there, not only to aid allies that rely on Persian Gulf oil but to stabilize prices around the world, including within the US.
While the US is energy “independent,” having become a net exporter of oil in 2019, that’s not the same thing as “isolated,” notes Katie Klingensmith, chief investment strategist at Edelman Financial Engines.
“We still import certain kinds of crude oil because US refineries are built for specific blends, and global trade often makes it cheaper to import some types and export others.”
In other words: Oil is sold on the global market, and as prices around the world go, so do prices that Americans pay at the gas pump. There is no special deal just for us.
It’s impossible to know whether he was serious about the idea, but it was just the latest in a series of inconsistent messages from the president nearly three weeks into the war. The White House referred questions about the post to press secretary Karoline Leavitt’s earlier statement that the president is continuing to work with allies in Europe and the Gulf to reopen the strait.
But that uncertainty is translating into real economic pain, a fact the Federal Reserve underscored Wednesday at the end of its two-day policy meeting. Jay Powell, the central bank chair, used the word “uncertainty” seven times during his press briefing.
“The truth is it is completely out of our hands,” he said when asked about Iran-related price increases. “Like everybody else, we have to wait and see what happens. It will come down to how long the current situation lasts.”
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