Let's begin with the basics and an explanation of global commodities. A global commodity is a product or substance so universally consumed across the globe that more or less consumption of that product or substance in any market anywhere on the planet economically effects the demand, and therefore the price of that product or substance across all markets, globally. Its simply the laws of supply and demand on a global scale.
Petroleum is a global commodity.
Literally, every single economy and market in the world, at some level or another, relies on the consumption of petroleum. Oil, to this day in spite of all the alternative energy sources being utilized, is what the world runs on. Oil supplies 34% of all the world's energy. It is the largest single source of energy in the world. Of all the electricity, heat, and motive energy produced across the globe, oil supplies more than a third.
And here's the problem:
If your local power plant fires its generators with oil, and the people that work there drive cars that run on gas, then they must compete with the people in Mogadishu that do the same thing to obtain them. If Mogadishu is willing to pay more and adjust for economies of scale, then they get first dibs. The entities that produce the oil and gasoline, from pumping out of the ground to putting it in your tank, all have a profit-based motivation to sell as high as the market will allow. This is capitalism at its finest. And its worked, for the most part, for about 150 years. Sure, there have been fluctuations and inflation, but energy prices have been way steadier than the stock market ever was. For the most part, as George Will would say, markets work.
But now take away 20% of that oil supply in literally a day. 20% of the substance that provides 34% of all the world's energy. It introduces scarcity into the market. You still need fuel in your car to get to work, but less of that fuel is available in the market. So, in order for you to get that gas for your car, you have to pay what literally everybody else in the world is willing to pay, or more depending on variable costs; transportation, storage, labor, etc. And they want to get to work as badly as you do.
Now some little known US-based oil facts. The United States is the largest single country oil producer in the world. We pump and process more petroleum than any other country. And what we don't produce for ourselves, we buy from...ready for it?....Canada. There is not now, nor has there ever been an "oil shortage." Production levels are carefully controlled to keep the market steady. This is the sole reason OPEC exists. There is more oil than we can use in 100 years still in the ground.
The problem is, its not universally distributed and refineries are not (totally) globally situated. Most Middle Eastern countries export their petroleum and import its products. Nor are the reserves universally situated. The Unites States produces more oil than any other country, but the State's reserves pale in comparison to those of Saudi Arabia, Oman and Qatar.
So while we could, conceivably, replace the oil that is NOT coming through the Straits of Hormuz, we would still need to be able to transport it to where it can be used. And...we didn't have a plan for that. Saudi Arabia alone can produce most of the shortfall almost instantaneously. But their oil, for the most part, goes through the Straits of Hormuz. The US can increase production to lighten the blow, and with West Texas crude at $96/barrel, you can bet that's happening. But again, we do not have the infrastructure to transport and refine that much oil. And building that would take decades.
And if you're thinking that we could produce and refine all the oil the U.S needs domestically, you're right, we could. But remember, oil is a global commodity. The same companies that sell it to you sell it in Mogadishu. Exxon/Mobil isn't going to limit its profits by selling at less than market. And its probably a good thing, unless you like $12/gal gasoline.
So my money is on the war with Iran ending soon with an international diplomatic core telling the US to get out and stay out, as long as the Straits reopen.
But we'll see...
UNUM