Biden oil remarks inject gas price uncertainty into campaign’s final month
BY ZACK BUDRYK - 10/06/24 6:00 AM ET
Oil prices increased this week after President Biden suggested Israel may
target Iran’s oil infrastructure in retaliation for a missile attack, raising the
prospect of pain at the pump for U.S. consumers in the waning days of the
presidential campaign.
On Thursday, responding to a question about whether the U.S. would back
Israel if it targets Iranian oil facilities, the president responded “we’re
discussing that” but added that “there’s nothing going to happen today.”
In the hours after the remarks, West Texas Intermediate, the U.S. oil
benchmark, spiked 5.5 percent.
Biden was less ambiguous in discouraging an attack on Iranian oil at a
White House briefing Friday, saying, “The Israelis have not concluded
what they’re going to do in terms of a strike. That’s under discussion. If I
were in their shoes I’d be thinking about other alternatives than striking oil
fields.”
The Israeli bombardment of Gaza in response to the Oct. 7 attacks has
had muted impacts on the oil market in the last year, especially compared
to Russia’s 2022 invasion of Ukraine, which sent gas prices to all-time
highs.
The conflict in the region has escalated dramatically in recent months,
including an Israeli incursion into Lebanon that killed Hezbollah leader
Hassan Nasrallah and a retaliatory strike by Iran. If further Israeli actions
do impact Iran’s oil production, their effects could be felt in the global oil
market — and Americans’ wallets.
Iran produces about 4 million barrels of oil daily, making it the No. 7
producer of any nation worldwide. While the U.S. does not rely on imports
from the nation, oil’s status as a global commodity means a shock to
Iranian supply still likely would affect American consumers, said Andy
Lipow, president of consulting firm Lipow Oil Associates LLC.
“The United States is connected to the global oil market, [and] if that
market lost supplies of Iranian oil it affects the consumer because
worldwide prices rise and the U.S. has become a major supplier to the
world,” he said.
Gas prices in the U.S. remain relatively low, as is typical going into the fall
and winter due to lower demand. As of Friday, AAA reported a national
average price of $3.182 per gallon, with much of the Midwest and the
South below $3.
The president does not directly set gas prices, but as a frequent expense
for American consumers, they remain one of the economic indicators that
most commonly affect presidential approval ratings.
In late 2021 and particularly after the 2022 invasion of Ukraine, U.S.
prices skyrocketed, accelerating the drop in Biden’s already-eroding
ratings. Although Republicans have associated Vice President Harris with
Biden’s record, she has largely performed better than him in polling since
becoming the Democratic presidential nominee, and recent surveys show
her significantly narrowing the gap with former President Trump on
economic issues, where he far outpaced Biden.
The low pump prices, in combination with a stronger-than-expected
September jobs report and the Federal Reserve’s recent moves to cut
interest rates, have contributed to positive economic headwinds in recent
weeks that Harris has seemed poised to benefit from.
But a sudden gas price shock could throw much of that into doubt.
What comes next for the prices, Lipow said, depends in large part on
whether Israel actually carries out an attack on Iranian oil facilities.
“The market is really waiting on headlines out of the Middle East for its
next move,” he said.
One possible target if Israel does choose to strike oil infrastructure, he
said, could be Kharg Island, from which Iran exports some 1.5 million
barrels per day.
“If that were the case, oil prices are likely to rise $5 to $7 a barrel,” Lipow
said. “Given recent increases we saw earlier this week this could mean
[Americans pay] 20 to 25 cents more for the gasoline that they buy.”
The OPEC+ bloc of oil-producing nations, of which Iran is a member,
retains about 6 million barrels per day of spare capacity that would enable
them to offset any shortfall in Iranian production, Lipow added. However,
he said, “they may decide not to replace, thinking the higher prices are to
their benefit.”
Tensions between Iran and Israel have been mounting since the beginning
of the Gaza conflict, raising concerns of a wider regional war. In April,
Israel struck an Iranian consulate in Syria and killed several senior
officials, after which Iran carried out its first direct, nonproxy strikes
against its longtime adversary. However, after Israel conducted retaliatory
strikes, Iran did not respond directly.
Lipow noted that if no Israeli attacks on Iran’s oil fields materialize in
response to Iran’s recent missile attack, the market is likely to return to
the status quo in the days ahead.
“If these attacks and counterattacks pass without any impact to oil
infrastructure, we’re likely to see the oil market get back its recent gains
as the market is oversupplied given the record production we’re seeing
out of the United States, Canada and Ghana combined with poorer
demand growth out of China,” he said.
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