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How bad is the energy crisis? Three factors are pushing the world towards the cliff edge

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Traders of oil futures are a sunny bunch. On April 17, after Iran’s foreign minister declared the Strait of Hormuz “completely open”, the price of Brent crude fell by 10 per cent, to $US90 ($126) a barrel. Within hours Iran reversed course and attacked an Indian tanker. The next trading day the global benchmark rose by just 5 per cent. It has gone back up above $US100 since but remains around $US15 below its high in late March, even though an American blockade has trapped even more oil in the Gulf.

When oil prices spike, where does the money go?

The market for oil is global, which is why events like the war in Iran affect oil prices – and prices of the wide range of products made from oil – literally everywhere. Federal data shows that the price at the primary crude oil hub in the U.S. was US$66 a barrel in late February 2026 – before the U.S. and Israel attacked Iran – and $101 a barrel on April 13. Similar price increases have reverberated around the globe.

As an energy economist and an international trade economist, we field a lot of questions during such episodes, because when oil prices go up, manufacturers, businesses and ultimately consumers pay more.

Physical Shortage and Global Growth

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There’s a strange kind of double counting that’s unique to commodity markets. The closure of the Strait of Hormuz means oil exports out of the Persian Gulf – including what goes through Saudi Arabia’s pipeline to the Red Sea – are running at roughly half their ordinary capacity. This has many folks worried because they think this “physical” shortage will now push prices up a lot. But this kind of logic ignores that markets are forward-looking. Oil prices have risen substantially from before the war, presumably in anticipation of exactly the physical shortages we see now. So when folks talk about how prices need to rise, they’re double counting. This is why I’ve been arguing that $150 or even $200 are unrealistic, including on the podcast with Paul Krugman that aired on March 21.

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