Why Gas Prices Spike Before the Tanks Even Move

Ryan Haylett

If gas jumps like 60 or 70 cents this week, that is not your local gas station owner waking up and deciding to become a supervillain. That is what happens when we stumble into what might be another forever war in the Middle East and act surprised that oil prices react. Trump keeps talking about how he doesn’t start wars, and now oil traders are setting their prices like they’re planning for "Regime Change: season sixteen". The guy behind the counter didn’t do that. He’s busy slinging overpriced hotdogs, with mayo from 2007.

Ryan Haylett

What actually moves gas prices is crude oil, futures traders, sanctions, war rumors, shipping lanes, OPEC meetings, and whatever new genius foreign policy decision just came out of Washington this week. And right now a big part of that conversation is Iran and the possibility of this situation getting worse.

Ryan Haylett

And here is the important part people don’t realize. Oil prices do not wait for a war to start. Prices move when traders think a war might start. So you do not need missiles hitting oil fields yet. You just need enough tension that some guy in a suit in New York goes, “Eh, this looks sketchy,” clicks a mouse, and now your commute costs more money.

Ryan Haylett

So congratulations. You are not just buying gasoline anymore. You are buying exposure to Middle East geopolitics in gallon sized increments. Every time you pull that nozzle, you are basically investing in global instability.

Ryan Haylett

Start with the gallon itself. Roughly half to sixty percent of what you pay is crude oil. That is the big one. Then you have refining, distribution, marketing, and taxes. So when people act like the big mystery is what the local gas station is doing, they are looking at the smallest, weakest link in the entire chain.

Ryan Haylett

People always yell at the gas station like the cashier controls OPEC. The guy behind the counter is busy thinking about his next cigarette break, he doesn't give a fuck about global energy policy.

Ryan Haylett

Crude oil is global. Traders are looking at expected supply, expected demand, and most importantly during times like this, expected chaos. Oil traders are basically ADHD squirrels. They hear one twig snap in the Middle East and they start hoarding acorns and jacking prices.

Ryan Haylett

This is because oil demand is what economists call inelastic, which is a fancy way of saying you still have to go to work even when everything is on fire. Trucks still need diesel. Farms still need fuel. Planes still fly. So even a small fear about supply problems can push prices up a lot.

Ryan Haylett

That is why geopolitical risk acts like a tax on your life. It gets baked into fuel, then into groceries, then into shipping, then into basically everything else you buy. Oil touches everything, so when oil moves, everything else moves with it.

Ryan Haylett

The gas pump is basically a giant public scoreboard for global chaos. Every headline about Iran, every military threat, every sanctions announcement, every press conference where politicians try to look tough, all of that can move prices before anything actually happens in the physical oil market.

Ryan Haylett

And this is where the Strait of Hormuz comes in, which is essentially the world’s most stressful chokepoint. A stupid amount of oil moves through that little strip of water every day, so when Iran starts throwing its weight around, or when anybody even whispers “shipping disruption,” the market starts acting like the whole global economy just got hit with a brick. Nobody has to actually close the strait for prices to jump. The threat alone is enough. That’s how fragile this whole setup is, one narrow waterway, one bad headline, and suddenly everybody’s paying more to get to work.

Ryan Haylett

Now layer OPEC onto this, because fear alone does not explain everything. OPEC, the Organization of the Petroleum Exporting Countries, formed on September 14, 1960, in Baghdad - by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, as well as the broader OPEC+ group, these governments basically coordinate how much oil gets pumped into the global market. If they pump more, prices usually go down. If they pump less, prices usually go up. It is not complicated, but it is incredibly powerful.

Ryan Haylett

In a normal competitive market, companies are supposed to compete and drive prices down. In oil, a bunch of countries literally get in a room and decide how much oil the world gets. And we just kind of accept this as normal because the alternative is the global economy exploding.

Ryan Haylett

The real power move they have is spare capacity. That is oil they could pump but are not pumping yet. Think of it like they are sitting next to the thermostat for the global economy. If prices get too crazy, they can turn the dial. If they like where prices are, they just sit there and do nothing.

Ryan Haylett

And governments in oil importing countries know this. Because when oil prices go up, voters get angry fast. People do not notice interest rate policy, they do not notice bond yields, but they absolutely notice when filling their truck suddenly costs thirty more dollars.

Ryan Haylett

This is where U.S. foreign policy comes into the picture, and this is where things get really fucking stupid. For decades, Washington has acted like it can sanction, threaten, bomb, posture, and generally stir up one of the most important oil regions in the world without any effect on energy prices. That is completely delusional.

Ryan Haylett

You cannot spend almost forty years poking a hornet’s nest and then act surprised when shit hits the fan. That is basically our Middle East policy in one sentence.

Ryan Haylett

Watching the White House talk about foreign policy feels like listening to somebody explain how they fixed the problem, and then seeing the problem is now worse, and somehow also on fire.

Ryan Haylett

The problem is instability itself raises oil prices. You do not even need supply to actually drop. If traders think supply might drop, that is enough. Fear is literally part of the price of oil.

Ryan Haylett

So you have OPEC managing supply on one side, and geopolitical tension constantly being stirred up on the other side. That is not a free market. That is managed scarcity mixed with global political chaos, and regular people get billed for both.

Ryan Haylett

Higher oil prices benefit oil exporting countries, big energy companies, defense contractors, and financial traders. There are a lot of very powerful groups that make a lot of money when the world is unstable and oil is expensive.

Ryan Haylett

The only group that does not benefit is the person driving forty minutes to work, buying groceries, paying for deliveries, and trying to keep a monthly budget from exploding every time something happens overseas.

Ryan Haylett

That is why I get annoyed when people talk about gas prices like it is just economics, like it is the weather. Like, “Ah yes, partly cloudy with a chance of five dollar gas.”

Ryan Haylett

Bullshit. This is policy, geopolitics, cartels, sanctions, wars, and traders gambling on all of it.

Ryan Haylett

The price at the pump is basically the receipt for the entire global oil system, and we are the ones paying it whether we like it or not.

Ryan Haylett

So the next time gas jumps overnight, do not scream at the guy behind the counter. He did not invade anybody. He did not sanction anybody. He did not threaten shipping lanes. He is just giving you a place to take a piss, and trying to sell you a coffee and some road meat.

Ryan Haylett

The real decisions that move that price sign are made in boardrooms, palaces, trading floors, and government buildings by people who have not looked at the price of regular unleaded in about twenty years.

Ryan Haylett

And until that changes, every time that there is a crisis in the Middle East, your wallet's ass is going to get kicked.