If you’ve been driving around the Holland area at all this semester then you may have noticed higher gas prices than you’re used to. In fact, the entire country is facing significantly higher prices than normal. This is due to many factors all culminating to inconvenience the American public.
The most obvious reason for these rising prices is the end of the COVID-19 pandemic. For a portion of 2020, the vast majority of people either worked from home or not at all. Even for months afterward, many people remained in their home offices and simply weren’t driving to work anymore. This, coupled with the shutdown of restaurants, movie theaters, and most other non-essential businesses, decimated the quantity of gas demanded by US consumers. However, oil production around the world was also brought to a standstill, meaning that the US was unable to stockpile nearly as much as they normally would have with a similar dip in demand. This means that when the pandemic relented and people began to drive around once again, there wasn’t enough gas to go around, leading to higher prices.
Another reason for the increased price is the inflation that the US has been undergoing in the last few years. Some of this is natural. According to Jason Furman, who served as the top economic adviser in the Obama administration, “A sizable chunk of the inflation we’re seeing is the inevitable result of coming out of the pandemic.” As people come out of hiding and start driving and buying again, supply lines can become tangled with the rapid influx of demand. However, Furman also sees administrative decisions as part of the problem. “Policymakers were so intent on staving off an economic collapse that they systematically underestimated inflation… they poured kerosene on the fire.” As The Federal Reserve prints more money, President Biden’s COVID relief package overstimulated the economy, driving inflation up even higher than before. Contrast this to Europe, where they face the same supply line issues, and their inflation is relatively controlled. This is likely because they provided less stimulus to the economy, primarily because the social programs they already have in place allow people to have access to government help without a big shake-up to their economy.
However, not all of our disputes are domestic. Rising gas prices also have to do with the global foreign policy of other nations. For reasons that baffle first-year econ students everywhere, the US actually imports and exports crude oil. In fact, we export about 8.50 million barrels a day and import only 7.8 million. This means that our oil supply is dependent on the oil production of other nations across the world, especially those in the Middle East and Russia. Both Russia and the Organization of the Petroleum Exporting Countries (OPEC) are slowly beginning to ramp up production in wake of the pandemic, however, they are failing to meet the rapidly increasing demand across the world as people have a necessity to drive again. President Biden called for Russia and OPEC to increase their production faster at the International Climate Change Conference in Glasglow, since “Oil is by far the leading source of energy in the US today,” said Mark Finley, a fellow in energy and global oil at Rice University’s Center for Energy Studies.
Many analysts have said that this gas crunch is proof that the US should become more self-reliant for fossil fuels like coal and oil because they are the driving forces behind our economy. This idea isn’t new, and tends to come up with the gas prices, but ignores the overall complexity of the national and global economy. While the US does export oil to other countries, we also import a large number of resources from other countries for that oil. For example, Americans are better at producing oil than Japan, and the Japanese are better at producing electronics and machinery than the US. We can trade our oil for their electronics. However, the US is worse at producing oil than Kuwait. Kuwait is bad at producing vehicles. Therefore, we trade our vehicles for their oil. This terrifying trade tango illustrates how the global economy works everywhere, between every country trading every product imaginable. It is a web that is so self-supporting that oil production in Russia can affect your gas prices in West Michigan.