An optimist might say this will all be sorted out quickly and soon enough we will be back to “normal”. And oil prices have retreated back below US$100 per barrel this week, on renewed hopes of a peace deal.
But they’re still elevated. Before war broke out in the Middle East, benchmark oil prices had hovered in the range of US$70 to US$80 a barrel since 2023. That’s near where they’ve sat, on average, in “normal” times for much of the past two decades.
But what if there is no way back to “normal”? What if the fundamental challenge now isn’t the short-term disruption in supply, but the realisation that the days of cheap oil may have come to an end?
OIL’S INVISIBLE REACH
Higher oil prices have a ripple effect that typically starts at the fuel pump. Petrol, diesel and jet fuel are top of mind. Driving to work, moving goods and travelling all become more expensive. Many fertilisers, too, are petrochemical products. That means farming around the world is exposed to a shock.
But the list of goods that rely on oil and gas goes far beyond fuel and fertiliser. According to the US Department of Energy, petrochemicals (derived from oil and gas) are involved in the manufacturing of more than 6,000 everyday products.
In many cases, this is because petrochemicals are a key input in the production of plastic. But other products on the list may be surprising, such as aspirin, dishwashing liquid, toothpaste and dyes.
Building materials used in construction warrant a special mention. Asphalt, insulation, paint, pipes, membranes, fittings and other composite materials are mostly oil byproducts. Manufacturing bricks and many ceramic products is also gas-intensive.
Add transporting it all to the construction site, and the oil crisis becomes another headwind to housing affordability.