Are oil price spikes good for the US?

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Brent crude hit $118 a barrel today for obvious reasons: a supply shock. The Strait of Hormuz, through which roughly 20 percent of the world’s seaborne oil normally flows, has been closed since the U.S. and Israel struck Iran in late February. Tanker traffic is down 70 percent.A lot of news stories have turned that into a discussion about inflation and recessions. I think we need to be careful about how we think about this, especially if we are just thinking about the U.S. economy. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.It seems that the people doing the debating haven’t updated their model of the U.S. energy economy. As I’ve explained before, it’s kind of an artificial divide between supply and demand. From another perspective, the U.S. hasn’t had a supply shock, at least not directly. We need to be careful. The country they’re worried about, the one that hemorrhaged hundreds of billions of dollars every time OPEC sneezed, doesn’t exist anymore.How big of a deal for the U.S.? Let’s use price theory to do some basic calculations.Who Gains and Who Loses?When energy prices rise, every country has consumers who lose and producers who gain. High prices or low prices aren’t blanket good or bad. The national effect depends on which side of the trade you’re on.Think about extreme examples. Take Saudi Arabia. When oil hits $118, Saudi consumers pay more for gasoline, just like everyone else. But the Saudis now export about 7 million barrels a day to the rest of the world. Clearly, the export revenue d…