The factoid thrown around is that roughly 20% of the world’s oil supply travels through the Strait of Hormuz. Since it closed, my local gas prices in one area of the US midwest have gone from $2.60 to now $4.10 presumably as reserves have been used up.
I could understand a 20~30% increase in price to correlate with the reduction in supply, but what are the economic factors that lead to what feels like such a disproportionate increase?
Part of the problem is gas supply is artificially kept low so the gas companies can increase demand and charge more (eg they intentionally underproduce). Because of that when unpredictable shocks hit the system the prices fluctuate wildly. For example during the pandemic no one was driving and the price of gas dropped dramatically in response. Even going into the negative one beautiful day. The oil companies didn’t know this dumb ass war was coming and didn’t have the opportunity to adjust production in preparation. It takes time to adjust the supply line. Yes they like high prices, but if they let it get too high people start talking about gross things like bike infrastructure and trains. And countries experiencing energy blackouts start considering solar panels and battery banks from China. OPEC+ doesn’t like that. Add to that some oil production infrastructure has been blown up - permanently taking it out of the supply line. The shortages are going to exponentially build because there are backlogs and bidding wars. I’m honestly surprised the gas is still this cheap.