Iran Threatens Continued Goods News at Pump

NEW YORK (MainStreet) -- Gas prices remained on a consistent, steadily lower march this week, although some serious saber rattling from oil-rich Iran threatens the welcome news at the pump for mobile Americans heading into the height of the summer travel season.

U.S. gas prices were down across the board, with the Midwest and the West recording the most significant price declines. In each region gas prices were 11 cents lower than during the last week in June.

See the chart below for a “head-to-toe” look at national gas prices on a regional basis, with data supplied by the U.S. Energy Information Administration.

One fly in the ointment in the coming weeks is the Iranian threat to plug the Strait of Hormuz, the geographical superhighway for oil to be shipped out of the Persian Gulf (an area that accounts for one-third of the world’s oil exports).

Iran, on its own, exported 2.5 million barrels of oil per day in 2011, and that number has dropped to 1.5 million barrels per day, according to the U.S. State Department. Any disruption in the Strait of Hormuz would decrease Iran’s export rate even more substantially.

Tensions are rising in the Mideast as the U.S. responded to the Iranian saber rattling this week by sending troops and equipment to the Strait of Hormuz, to essentially block Iran from blocking oil transport in the region.

It’s not necessarily a military conflict that commodity analysts fear, it’s the “drip, drip, drip” effect of a more sustained, lower level oil supply disruption.

"The concern isn't that Iran might sink a ship," said Michael Lynch, president of Strategic Energy & Economic Research, in comments to the Associated Press on July 3, 2012. "It's for a longer conflict that will keep insurers wanting to stay away from the Gulf, which would cause a disruption of shipping that could last a few weeks. That's a major disruption of the world's oil."

How does all this impact the price of gasoline?

It’s still about basic supply and demand.

If the Strait was to tighten or close altogether (highly doubtful at this point, but a threat Western nations are taking seriously), oil supply would be reduced, leading to higher prices as consumers clamored for a commodity that just grew more scarce. That’s why oil prices climbed to $88 per barrel (it’s at $85 per barrel today) last week, a $10 rise in crude oil prices within 10 days time.

Right at the center of the U.S, the impact of the Iranian threat was immediately felt this week, as gasoline prices in Chicago rose 4 cents on Tuesday, to $3.65, the highest level Windy City drivers have seen since early June.

If the Iranian situation worsens, the recent trend of lower gas prices would follow Chicago’s lead, and reverse course on an upward trend. That’s the last thing hard-hit U.S. consumers need going into the second half of 2012.

The good news?

Higher gas prices are also the last thing the White House needs going into a November presidential election that will likely be decided on the economy. Count on Washington to come down hard on Iran if it tries to follow through on its threat to cork the Strait of Hormuz.

And for the meantime, enjoy the unusually bearable summer gas prices while you can.

Source: CSMonitor.com