Gas Prices and the Middle East

Gas Prices and the Middle East

Although they may not realize it, everyone is affected by the violence and unrest taking place in the Middle East. Tense situations continue to dominate in countries like Egypt, where President Hosni Mubarak recently handed over power to the military and left the country.  Additionally, in Tunisia and Bahrain, and most recently Libya, revolutionary spirits continue to build and the threat of government overthrows is constant.  As a result, these uncertain times bring an increase to crude oil prices.

Everyone uses transportation in some way or another and as prices continue to soar, daily routines are affected. Amid the turmoil in the Middle East, the cost of crude oil rose $5.22, or 6 percent, to $91.42 a barrel. This as the domestic price of oil is near a two-year high. Prices today also have hit the highest levels ever for the middle of February.

These figures revive memories of the energy price surge during the first half of 2008, when crude oil prices rose to record levels. The all-time high price of $147.27 a barrel, which was reached in July 2008, could be broken as further violence occurs in Libya. Unlike Egypt and Bahrain, Libya is a member of the Organization of the Petroleum Exporting Counties (OPEC), and produces about 1.5 million barrels daily. Libya  accounts for only about 2 percent of the world’s oil production. However, unrest in the country, where dictator Mommar Gadhafi has been accused of ordering troops and mercenaries to kill unarmed protesters, has stoked fears of increased instability across the region. Oil markets are especially sensitive to disruptions to this major link in the global supply chain. With the threat of citizen protests and the attempts by the government to suppress and begin to squeeze the country’s oil production, U.S. gas prices are further affected.  

Additionally, although Libya exports most of its oil to Italy and other European nations, a stop in production could affect the U.S. This is because if Europe can’t buy oil from Libya, it is expected to turn to countries that the United States buys from, which, once again, drives up oil prices worldwide.

Although uninvolved with the controversies, Saudi Arabia is another very important factor in the world’s oil production, providing nearly 9 percent to U.S. oil imports. If street protests and other violence spread to countries like this, prices could rise even higher to never seen rates.

With all of this insecurity in the Middle East oil industry, the price of gas is expected to reach $3.50 to $3.75 per gallon this spring because of the usual run-up in prices ahead of the summer driving season. That would mean a 12 to 20 percent increase from the current level, according to OPIS chief oil analyst, Tom Kloza.

The price increase affects much more than just the amount paid at the pump. Consumers across the country paid more for goods in January. When gas prices rise, the cost to transport items, like food and clothing also rises. The difference causes the price to be higher for the consumer. In fact, food prices climbed 0.5 percent in January, the most in two years. Cotton and agricultural prices also rose, making clothing items prices increase with everything else.

As costs are rising for everything in this day and age, gas prices are also conforming to the trend. With prices expected to rise even more as spring arrives and the uncertainty in the Middle East, many wonder how high the cost of travel will rise.