Original Coverage & Source Attribution: oilprice.com
Inflation rates remain blistering high across the United States. The Bureau of Labor Statistics’s most recent Consumer Price Index, released last week, revealed numbers that were higher than most projections, indicating long-term pain for consumers and a nightmare election cycle for Donald Trump. And the reason for all of it is huge and persistent volatility in global oil and gas markets.
The October 14 Consumer Price Index showed that overall, prices for goods and services across the United States have risen 3.7 percent over the last 12 months. A huge amount of that gain is being driven by energy costs. Over the same time period, gasoline shot up a punishing 34.2 percent and fuel oil (which is primarily used by consumers in residential heating) has risen an astonishing 74.2 percent.
“The proximal cause is the war, of course, and the figures cement that US President Donald Trump has by now run out of time to change the picture ahead of the midterm election,” writes Tim McDonnell, the
climate and energy editor for the nonpartisan news outlet Semafor, in an opinion piece published earlier this week. Plus, the war in Iran is showing no sign of slowing. Though crude oil is once again flowing through the Strait of Hormuz after months of blockages, violence and disruption has become the ‘new normal’ in the waterway that serves as a vital artery for the global oil and gas trade.
“That paints a dreary picture for Americans struggling with high costs, who likely won’t feel any relief at the pump in the near future — especially as more potential military action looms,” Business Insider reported on Monday. “For everyday Americans, all of these international strains amount to what is, essentially, a pay cut,” the article goes on to say. “Wage growth remains slow and steady, but, over the past few months, rising prices have outpaced pay increases.”
The impact on U.S. families and on the Trump administration will undoubtedly be enormous, lengthy, and painful as inflation shows no sign of slowing and international markets remain volatile. But, McDonnell argues in his op-ed for Semafor, there’s an even bigger takeaway to be had here. Oil and gas, the stalwart energy resources that built this country’s wealth and enabled the global industrial revolution, are no longer a reliable source of energy security. As long as oil and gas have reigned supreme in the global energy mix, geopolitics have held enormous and dangerous sway over whole economies and political regimes thanks to an impact that European Central Bank official Isabel Schnabel has called ‘fossilflation.’
“The inherent volatility of oil and gas prices is a persistent vulnerability in the US economy that can only be solved by limiting exposure to these energy sources,” writes McDonnell. “Domestic drilling has put more of the supply-demand balance under US control, but can’t shield American consumers from global price turmoil,” he goes on to say.
The entire world seems to be learning this lesson. The global clean energy transition has been catalyzed by the war in Iran as countries around the world have scrambled to diversify their energy mixes and build up indigenous energy resources, and have almost universally found renewable energy to be the best option. First and foremost, solar and wind are cheap – too cheap to fail. Second, they provide a pathway to energy independence and resilience that fossil fuels simply do not.
“Wind and solar cannot be embargoed, blockaded, or shut off by a foreign power,” David Frykman, General Partner at Stockholm-based venture capital group Norrsken, wrote in an op-ed for Fortune earlier this year. “Every terawatt-hour of domestic renewable generation is a terawatt-hour that no adversary can weaponize.”
McDonnell acknowledges that the clean energy transition comes with its own inflationary risks. But these costs are simply outweighed by the benefit of being able to predictably price the output of alternative energy sources. “A world with very boring energy prices would be one in which inflation is significantly more divorced from geopolitics,” he argues.
By Haley Zaremba for Oilprice.com
