Daily Fuel Economy Tip

The Iran Hostage Crisis Part 2 - What Will This Mean for Gas Prices?

As I’m sure you’re already well aware, last Friday, the Iranian navy seized 15 British sailors who had boarded a merchant ship somewhere in the Persian Gulf.  Whether the British sailors were in Iraqi or Iranian waters remains to be determined, but what is for certain is this has the potential to drag out, escalate and have massive worldwide implications.

Could one of those implications be $100 oil, and $4 or $5 gas here in the United States?  If Tuesday’s 8% jump in oil prices (in less than 10 minutes, no less) is any indication, it certainly seems that higher oil and gasoline prices are an absolute certainty until the “Iran Hostage Crisis Part II” is resolved peacefully.

For some historical perspective (instead of just relying on rumors and speculation), I decided to take a look at the 1979 Iran Hostage Crisis to see how that affected oil and gasoline prices. 

If you’ll recall, the “original” Iran Hostage Crisis began in late 1979, when a group of Islamic militants held 66 United States citizens captive until early 1981.  While 14 hostages were released throughout the crisis, 52 people were held captive for a total of 444 days.

The Iran Hostage Crisis brought about the second energy crisis of the 1970s, and caused the price of oil to jump from $15.85 per barrel to a then record high of $39.50 over a 12 month period.  Essentially, over a 12 month time frame, the price of oil jumped 150%.

Granted, that price increase occurred over a year’s time, so I don’t think that means we’re going to see a 150% jump in the price of oil by June, but let’s say that this latest episode takes a long time to get resolved.  If this were the case, and oil jumped by the same 150%, we would be looking at oil prices approaching $150 per barrel.

If gas prices were to increase at the same rate, a year from now we (meaning those of us in America) would likely be paying $6 or $7 for a gallon of gasoline.

I don’t think it takes a PhD in economics to realize that the current situation in Iran has the potential to absolutely cripple the global economy and bring about a global depression.  Not an economic recession, but an economic depression.

Thankfully, I don’t believe Iran is going to let it get to that point, especially because they’re well aware that they need Western dollars in order to sustain their own economy.  What will probably happen is they’ll hold the hostages for a few more days and take this opportunity to do some political grandstanding and muscle flexing and demand that the West stays out of their business.

Once the sailors are released, most of the world will breathe a collective sigh of relief and things will return to “normal.”  I think all of the parties involved know that there’s too much at stake to let this escalate further.

At least, I hope so.

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