March 9th, 2012
01:48 PM ET

Zakaria: Why oil prices keep rising

Hundreds of you have submitted very thoughtful questions for me through FacebookTwitter and my blog. Over the next few days, I am going to post my text and video responses to some of the most common questions and a few others that caught my eye.

The rising price of oil is the single most serious threat to the global economic recovery, the U.S. economy and President Obama's reelection prospects. Right now, we are beginning to move into a pretty broad-based recovery. Manufacturing is rising for the first time in 25 years. Technology firms are doing very well. Retail is picking up.  The green shoots of the housing recovery are emerging and that's very important because housing has led almost every recovery since World War II. .

But all the while that you have this economic good news, you are beginning to see oil prices rise quite substantially.  They're up about 15 percent over the last few months. And that could put a damper on all this good news. Why is the price of oil rising?

Zakaria: Iran is a "rational actor"

It's happening for one reason, principally and that is geopolitical risk.  There are fears of a war with Iran and  fears that crippling sanctions on Iran would cut down Iranian oil exports almost entirely.

If you look at demand for oil, it's just not that strong.  Much of the world is in slower economic times than before.  In January 2007, oil was $50 a barrel. It's now $110 a barrel. This doesn't make any economic sense unless you factor in geopolitical risk. So for oil prices to decline, there must be some resolution to the tensions with Iran.

But there is a broader problem, which is that there just isn't that much oil on the market and demand is going to begin to rise again as many countries come out of their recessions and into recoveries.

Zakaria: Another war in the Middle East?

There isn't that much of what's called "spare capacity" - the ability to increase production quickly.  The only ones who have it are Saudi Arabia and they are operating at their limits in some ways.

So there are economic fundamentals that explain why oil prices are high - but not why they are so high.  The reason they are so high is really Iran, Iran and Iran.

Post by:
Topics: Economy • Iran • Oil

soundoff (440 Responses)
  1. The Mad Zak

    There are two reasons why the price of oil is this high:
    1) The global dependence on it. We do not have the technology (or the infrastructure) to enable our vehicles to run on a different fuel. Think about it. If coffee goes to $100 a lb. a consumer can choose to drink tea. (They may not like it as much, but they can get their caffene buzz elsewhere.) Those speculators who bought coffee at $100 a lb. will not be able to sell at that price. Since people stopped buying it, they will only be able to sell their investment if they lower the price. We can't do that with oil. We have no other fuel that can be produced as cheaply, nor do we have the infrastructure in place to (for example) produce 100 million gallons of ethanol a day.
    2) The price of oil is this high because we put up with it. As much as we complain about it we are continuing to buy it. We have not reached the breaking point yet. As a nation (or globally) we could say "Enough!" and make oil a regulated resource, just as local utilities are regulated. No more would oil companies be allowed to sell overseas, nor would they be allowed to claim unreasonable profits. The problem is, this would cause a lot of ruckus in the marketplace and in our government.

    March 9, 2012 at 5:46 pm |
  2. chris

    outside my office, gas was at 3.89 this morning. It is at 4.09 now. 8 hours.

    March 9, 2012 at 5:52 pm |
    • Neko

      Abdul, you are such a big time liar. hehehe...

      March 10, 2012 at 4:22 pm |
  3. steve

    And the energy policies of this administration haven't helped any. Remember the gulf and the keystone pipeline?

    March 9, 2012 at 5:59 pm |
    • steven harnack

      BS. The price of oil is set by a world market that could not care less about the Keystone pipeline or the moratorium on deep water drilling. That is flat out psychobabble by Republican politicians and falls into the category of "Not intended to be a factual statement".

      March 9, 2012 at 6:14 pm |
  4. george in exas

    mr. obama failed to protect our national (economic) interests when he failed to rein in bellicose netanyahoo, our unwanted guest, the unwise man from the east. worse, leon panetta played into it. yahoo went home laughing, no doubt, costing us a few extra biliions in higher oil price because of his hot air in our country.

    March 9, 2012 at 6:05 pm |
    • george in exas

      we oughta take out those extra billions from the aid we give to israel. this will force israel to elect a moderate govt for mideast peace.

      March 9, 2012 at 6:07 pm |
      • autochannel

        anti American you!

        March 9, 2012 at 7:38 pm |
      • question

        no, do not stop the aid to Israel. stop the aid to Pakistan, Egypt and all those other countries that we can't trust

        March 10, 2012 at 10:05 pm |
  5. Deathstalker

    The reason Oil prices are so high is because we do not have a choice. We cant drive on air or water or hydrogen or electricity unless you have one of those cars and most people don’t. So you have no choice but to buy gas which is made with oil. Until we give ourselves that choice as a country we are going to get bent over the oil barrel every time. We have no alternative to oil and that is our number one issue. It is also the number one reason for all of our economic problems regardless of what others have to say high gas prices are what is killing middle class America.

    March 9, 2012 at 6:17 pm |
  6. John S

    American greed. From big business to the senate, they all have committed financial treason against their own country. They all should be hanged. There is no other solution.

    March 9, 2012 at 6:20 pm |
  7. IdiotsRUs

    I'm sorry, but I can't help saying this. You're an idiot.

    There is not that much demand for oil. Have you ever studied economics? Of course there is a higher demand for oil. When demand goes up, the price goes up. When the demand goes down, the prices goes down. NOT THE OTHER WAY AROUND.

    March 9, 2012 at 6:21 pm |
  8. autochannel

    virtually all 1984 and newer cars can safely run on E85 modification necessary, 70% less gasoline used now ... what is the problem?

    March 9, 2012 at 7:36 pm |
  9. mardjan

    If the price of oil is so important, then why the blaze did we go and provoke the Iranians who were minding their own business in their corner. We pay politicians and Diplomats to run policies. These last few years they have engaged us in two useless deadbeat wars and now try to bluff the Iranians clumsily and Oopse! instead they jacked up the price of oil.Shouldn't we have thought of this before threatening Iranians? I think a couple of these analysts don't know how to do their job and week after week they come on CNN and look very knowledgeable. As if we have forgotten that none of the predictions they made a week ago was right.

    March 9, 2012 at 7:41 pm |
  10. Gary Carter

    Just another excuse to raise our gas prices.
    The US doesn't even buy oil from Iran.
    We buy most from Canada, then mexico and then Saudi Arabia.
    So, tell us again why Iran has anything to do with the rising cost of gas for the US.
    What a bunch f crap.

    March 9, 2012 at 7:51 pm |
    • mardjan

      I agree that we should find alternative fuels and reduce our dependence on foreign oil. But in the mean time can we please fire a few of these politicians, analysts and whatnots who clumsily make life difficult for you and me?Bunch of trouble makers!

      March 9, 2012 at 8:16 pm |
  11. Georgia Hull

    This story is inaccurate. The price of oil has gone down in the last week. Iran is a small country which does not affect the US. at all. Not even oil prices. This story is simply not true. Iran is no threat to the US. If Israel is worried about Iran than they should take it to the UN. As an American citizen I do not agree with America getting involved militarily with Iran. Let the UN handle it.

    March 9, 2012 at 8:04 pm |
    • Neko

      Fatmah, habibji, the point is not that Iran has or does not have the power to unilaterally change the price of oil; but, that because of Iran's war mongering, along with their closeness to Oil Routes, they will cause so much chaos that oil will be difficult to deliver. Now, we know that Iran specifically wants to cause chaos and consequently must be stopped, sooner rather than later.

      March 10, 2012 at 4:30 pm |
  12. mickey1313

    the problem is we alow the brokers to bid based on "futures". Since there is no psychic powers, there can be no way to know the future. Also, they can now prove that oil is not produced how we used to believe, and that there is no no oil peak, there will never be an oil peak, and that oil is continuouly being created in the ground (it does not take millions of years as once thought). we need to base the price of oil of the price of manufacture and distrobution, which would put a barel of oil at about 25 dollars to produce. The oil comapnies are stealing the money. It is odd that oil is a national resorce, but our government is not in control of it. It is also strange that companies that have proven themselves criminally negligent when it comes to safty (BP) are alowed to operate in the US.

    March 9, 2012 at 8:30 pm |
    • maine man

      funny you say that , the shale oil products coming out of north Dakota are considered a "precursor" to oil. Interestingly the same chemical components have also been found on asteroids

      March 9, 2012 at 9:40 pm |
  13. Dan

    I think that if you give me 20 minutes alone with each of the oil executives and major players and you'll see $1.98 a gallon the next day.

    March 9, 2012 at 8:34 pm |
  14. Dave

    Pure speculative B.S.... Iran has nothing to do with the price rising... or dropping, it's what the "party" (NWO) want you to believe through their pet, manipulated new media.

    People need to wake up & smell the Bu**Shi* that's going on.... it's just going to get worse.

    What can you do about it?.. absolutely nothing, but, at least you know what hit you when it does.

    March 9, 2012 at 8:45 pm |
  15. maine man

    speculation is what is driving oil prices a this point. If you consider that we had one of the warmest winters on record, and that Americans are using less gasoline because the economy has slumped and people are traveling less then there is nothing that os driving the price of gasoline and heating oil other than market control by the oil companies.
    A friend of mine does a lot of work as an engineer in the oil industry and he said that often from the time that oil is pumped out of the ground , to the time that it is shipped across the ocean to be cracked and distilled it will often change hands two or three times ( bought and sold by speculators) while on the tank ships. If a person or company who owns the crude decides to sit on it to influence price they do so. The problem is that oil companies are so large they are essentially all on the same page in that they can control the price.

    despite all the flak , the answer is some sort of combination of green energy. solar heat, solar electricity, wind power, tidal power in varying forms, bio diesel, electric cars, etc.
    no one piece is the answer , but in combination all of them are the answer and the future.

    March 9, 2012 at 9:38 pm |
  16. Al-Kc

    I can't believe this story. Why is it the president's fault. Do you think he wakes up at midnight every night and tells the oil companies to raise the prices? We pump a lot of oil here now look and see how much is exported. Just like that pipeline they want to build do you think the oil will stay here? If you do you are sadly mistaken. We export millions of gallons every week.

    March 9, 2012 at 9:42 pm |
  17. Rz

    You can print money, but you can't print oil !!

    March 9, 2012 at 10:26 pm |
  18. John Q Public

    Two Words - BEN BERNANKE. He introduced $100 oil to the world back in 2008. Iran Iran Iran was not the cause then, was it? He pumps free money onto the planet and oil gets bid up. And Bernanke has a President who likes high oil prices and provides cover, and Bernanke now has a media who provide cover as well. Every year since Obama became President there is a surge in oil prices that begins in about September/October.

    March 9, 2012 at 10:29 pm |
  19. Voice of Reason

    Oil prices are being driven up by Big Oil, which is using this as a means to keep Obama from being re-elected.

    March 9, 2012 at 10:31 pm |
    • Aziz

      I am telling you , I am scared. You are so right, I am so sorry I ever doubted you. You are the voice of Reason.
      No, just fooling with you Abdul.

      March 10, 2012 at 6:10 pm |
  20. Hadenuffyet

    Somewhat ignored historical fact about oil company ethics:
    Leading up to and during WW2 , Royal Dutch Shell was selling oil to The Nazi's AND Allies at the same time.
    You got the cash , we got the goods , for a nominal fee....

    March 9, 2012 at 10:32 pm |
  21. Marcus

    I can't wait until a better hydrogen fuel cell car is developed so I can stick my middle finger up to Wall Street and the oil companies. At some point the automakers are going to grasp this technology because they know these high oil prices are screwing them over. The first automaker who makes it there will be the winner and then it will be all over for the oil industry, speculators and Wall Street.

    March 9, 2012 at 10:42 pm |
    • JustShutUp11

      True. Thought do you mean more electric cars as well?

      March 9, 2012 at 11:03 pm |
    • Matt

      You can do it right now, spend a little extra a get a Volt. Its an excellent car. Got one myself. No gas purchased for 4 months. I drive about 30 miles all electric and a few 300 Miles trip here and there overall 70% EV. During 6 months of my driving I send $700 less to OIL companies.

      So we can all stick it to them allready. Why do you think the right is so adamant to try to bash the Volt when gas is close to 4 dollars a Gallon, the OIL industry knows that if the electric ball start rolling its game over, gas at 4 and above and people will take a close look at alternatives.

      Test drive one, it wont hurt. Maybe find some local Volt owners and get their story.

      March 10, 2012 at 12:07 am |
    • Andrew

      With fuel cell vehicles, you're looking at a MUCH more complicated infrastructure change than with switching to electric. Complicated meaning expensive. Price speculation, also, is just too big of a money maker for the street to allow a paradigm shift of that magnitude to happen anytime in the next 5+ years, at least on a commercial scale where it would hurt them most.

      March 10, 2012 at 5:28 am |
      • Marcus

        Maybe so but from what I have seen the hydrogen fuel cell technology will lead the way for change and they (speculators) will have no choice but accept it. The world can't have a few individuals like this raping the world. Personally now I wish Bin Laden had taken out Wall Street. I mean really there seems nothing to put a stop to these people controlling the world markets from necessities to medicine. We can't have that...period.

        March 10, 2012 at 12:51 pm |
  22. JustShutUp11

    OK so some people or country in this world can be selfish but of course the world is not perfect so why not?

    March 9, 2012 at 11:06 pm |
  23. P.M

    Because Iran threatens to cut Oil Europe!

    March 9, 2012 at 11:07 pm |
  24. Ricci

    One person can make an impact.

    March 9, 2012 at 11:48 pm |
  25. Matt

    We all let them get to powerful. Oil has the monopoly on transport fuel so they can set the price. We all need to sacrifce and look at wasy to diversify. Next time you look for a car. Make sure you cross shop for Hybrids or National Gas Cars, Ethanol or Electric if that fits your drivining habbits. Then when you see the few thousand extra you have to pay for the car that not offset by the gas savings remember one thing. Sacrifice in the short run will bring benefit in the long run. We have forgot this, we all need to pay a little more for our cars so we can become free from OILs monpoly.

    For Example the Volt cost 39500 before tax credit. You get a 7.5K tax credit then over 5 years you save atleast 1k a year which bring the comparable cost down to 27K. Sure its a little more than the other sedan you could buy. But what did you just do. You took $5000 that would be garanteed for the OIL companies over those 5 years and took it away from them, do it for 10 years and now you see where I am going. Now if a lot of people bought electric or National Gas or any other alternative energy car we would create an alternative and true competion. This would bring the prices down and we get some cleaner local enviroment as a by product.

    The OIL industry know this and do not want these alternatives to come to life, they stand to loose TRILLIONS.

    March 10, 2012 at 12:01 am |
  26. Scott

    If I had a dollar for every dumb sh_t that gets up and says we are out of oil, we are running out of oil or there is no spaer capacity I WOULD BE A MILLIONAIRE. I have been listening to this crap since the 1970's. Drilling does not work to bring the price down, take a look at natural gas. Remember just a few years back how expensive it was to heat your house? There is so much natural gas now they cant find places to store it all.

    March 10, 2012 at 12:44 am |
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