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. Relictus

    Non-renewable resource. The world uses 85 million barrels of oil per day. The proven world reserves are sufficient for 40 more years. Then it's gone. Within one person's lifetime, the next generation will see the end of the gasoline powered economy.

    March 10, 2012 at 2:37 am |
    • yahmez

      It would be better to quit burning oil now and be able to make plastics for hundreds of years.

      March 10, 2012 at 5:18 am |
    • silvereagle

      40 more years of oil.According to President Jimmy [peanut] Carter he said when he was president that we would be out of oil in 30 years.There are massive amounts of undiscovered oil on this planet and more is being made all the time.Alaska has plenty but the group that runs our country the EPA won't let us drill because we might destroy the almighty tick turd.

      March 10, 2012 at 7:29 am |
  2. Bruce

    1.Why doesn't anyone say our country now has Compressed Natural Gas and CNG vehicles have been around for 30 years or more my state of PA bought 30 CNG cars 30 years ago and they still are in use.
    2.With the new oil here in the USA we are exporting millions of barrels of oil each week if our government representative gave a CRAP all they need to do is place a HUGE export tax on our oil and CNG and that would stop and we would have more oil than needed.
    3.We should have a CNG distribution network here in the USA already other countries have theirs in place now but again out so called representatives do everything they can to stop this from happening, WHY the mighty dollar.

    March 10, 2012 at 7:09 am |
  3. silvereagle

    Using a so called might be a war with iran is just another excuse to raise the price of gas.This country has a glut of excess oil.That is why 2 east coast refineriers are being shut down for good.We don't need the pipeline from canada because the oil was[is] going to sold oversea anyway.Canada was just looking for a easy way to get the oil to market.If the U.S needed more oil we would be building new refineries instead of shutting [2] down.I smell money game just like the money game housing market.How many people became multi-millionaires because of that?Who did they leave to pay the bills? How many of those companies too big to fail are now going to fund Olebangers reelection.Think about that one.

    March 10, 2012 at 7:25 am |
  4. Don

    So it's all and only about Iran, huh, Zakaria? Has nothing to do with the ludicrous restrictions liberals place upon oil producers on American soil, right?

    March 10, 2012 at 7:32 am |
  5. Steve

    Energy is the Driving force of American Commerce. Oil is the single most important component of our Nations Energy.

    Oil is the raw material for our petrol-chemical industry: plastics, pharmaceuticals, everything from kerosene to asphalt to build our roads.

    Being highly portable, it heats our homes, moves our products in commerce, and main fuel for transportation of the American people.

    The United States has experienced a recent 15% increase of cost and that increase is directly due to Israel's threats of attacking the sovereign state of Iran.

    AIPAC has blatantly supported, lobbied the United States Congress and President/Executive Office to wage war on Iran.

    Currently, the United States consumes 19.6 million barrels per day, of oil, which is more than 25% of the world's total.
    37% of the Energy used by the United States is derived from Oil.

    A $15 increase of the price of Oil (approximate at todays $100/barrel cost) COST THE AMERICAN CONSUMER $300 MILLION PER DAY IN OIL ALONE.
    $110 Billion per year, more than $300 per year for the United States citizen in raw wholesale costs at $100/barrel, nearly $1000/consumer unit.

    There are 42 gallons in a barrel of oil. A $100 barrel of oil is $2.38/gallon.
    Gasoline is a refined oil product and currently the national average for a gallon is $3.79.

    Nearly every product in America cost is directly affected by the price of gasoline: farm products, groceries, commuting, manufacturing, etc.

    This cost is not confined to simply Oil, that 15 % increase is nearly across the entire board of American consumerism.

    ***** This 15% increase is costing the American consumer nearly $1 Trillion/year. ******

    This promoting of the War against Iran is expensive, and for whose benefit, certainly not the US citizen.

    data: news.release cesan.nr0
    15% of 121M consumer units @ $50K/unit

    March 10, 2012 at 7:43 am |
  6. Steve

    AIPAC is a ultra-National Lobby connected to Foreign Interests, For Foreign Interests, And should Be required to Register as a Foreign Agent under FARA.

    It arose from its predecessor AZC after having found illegal and ordered to be in compliance with the law under FARA .
    AIPAC assimilated that influence in its inception.

    The American Israel Public Affairs Committee was incorporated on January 2, 1963[11] by Isaiah L. "Si" Kenen. Kenen originally ran the American Zionist Committee for Public Affairs as a lobbying division of the American Zionist Council. Before that, Kenen was an employee of the Israeli Ministry of Foreign Affairs.

    March 10, 2012 at 7:49 am |
  7. James

    Let Iran bomb/blow Israel out of existence. We are not the world's police and it seems as though Obama is more interested in protecting Israel rather than the people who put him into office.

    March 10, 2012 at 7:57 am |
    • Waleed

      Thank Allah that America is willing and able to protect their allies; otherwise, snakes and scorpions like you would try and wipe them out. Why, because they love their children and you do not.

      March 11, 2012 at 12:51 pm |
  8. Abbott

    Oil is a finite resource. Oil companies have invested heavily in oil extraction/refining infrastructure and a distribution network. These companies will sensibly want to maximize their investment. There are unstable countries in the middle east where much of the world's oil lies. There will be increasing demand for oil driven by developing nations. It seems that America doesn't understand the need for change. We can buy smaller vehicles that are more gas efficient. That will lower demand here and buy us some time. Eventually, we need an American energy strategy that takes us away from oil. Oil companies won't like it. And for us, the fact is gasoline is never going to be that cheap again over the long term. Buying big, expensive vehicles with high fuel consumption just doesn't make sense. Yes, we are a free people, but freedom doesn't change the real world. Oil is going away.

    March 10, 2012 at 8:10 am |
  9. Bruce

    Well I served in Vietnam and have been a 100% disabled veteran for years why all for nothing. Just like the more than 60,000 wounded veterans now that have came home to live there lives out in pain all for nothing.

    I agree 100% our country is 16 trillion in debt my poor grand-kids will never experience life a I have not that my life was super but at least I had a job and could keep up with inflation. Let's dace it the entire world i bankrupt how are they trying to fix this with borrow worthless money, I am sure this will solve the problem.

    We have all the oil in this country we need all we need to do is keep it here. CNG and oil wells. Have been going to TX for winters now for years and they have hundreds of capped oil wells sitting there now for years.

    Anyway my point is we have all the oil we need if it would stay in the USA where it is being pumped from OUR ground. But because of the GREED of the dollar we export it and import oil.

    Our so called representatives have to stop this in a minute just place a BIG excise tax on it large enough that no other countries will but it then our oil stays here as it should and we have no more oil crisis but an abundance of oil bringing the prices down.

    I know this message is about oil costs but let's look at our country and it's leaders they do not give 2 cents about you all they care about is power, money and getting re-elected that is there only concern.

    This is the USA we can do anything we put our minds to and we could have a CNG distribution network across this USA in six months if our representatives would allow it. BUT the oil industry naturally does not want it to be so especially when they are making BILLIONS daily.

    To bad everything is about the dollar and not humanity

    Ok I will try and cool off now 🙂

    March 10, 2012 at 8:21 am |
  10. JC

    Speculation speculation speculation. Get it right the market controls the price of oil.

    March 10, 2012 at 8:55 am |
    • TexDoc

      The speculation is also about the Dollar. Since oil is priced in dollars, a lack of confidence in our currency drives the number of dollars needed to buy a barrel of oil.

      March 10, 2012 at 9:18 am |
  11. TexDoc

    The oil price is set in DOLLARS. So if the dollar is worth less, you need more of them to buy a barrel. We are 16 trillion dollars in debt and the world knows that each dollar printed is worth less. Right now it's gas and oil, but in just weeks to months prices on everything will start climbing by the day. Hyperinflation is coming.

    March 10, 2012 at 9:16 am |
  12. Abdul Ameer

    It is not "Iran, Iran, Iran". It is "The Islamic Republic of Iran, The Islamic Republic of Iran, The Islamic Republic of Iran".
    It is also al Qaeda, especially in Yemen and Iraq. It is also Boko Haram in Nigeria. It is also the general turbulence in the Moslem countries.

    March 10, 2012 at 9:31 am |
  13. POD

    Oil Prices are high because they are set by a global monopolistic cartel......that can make them anything they want to make them whenever they feel like it. Always rationalized by some of the 'smoke blowing' reasons as presented in this article

    March 10, 2012 at 9:41 am |
  14. Punisher2000

    While your comments are good, you forget two factors:1-speculation has a definitive weight on the pricing 2- oil companies keep the number of refineries low, because they cost a lot to build and because they can control supply of gas thus affecting the price. The fact that wholesale gas is traded as a commodity doesn`t help either. So, blaming either party for the price of gas is ridiculous.

    March 10, 2012 at 9:45 am |
  15. Kyle

    Some of us don't understand the "oil crisis", it is all speculation. We get a very SMALL percentage from Iran! It goes down to the refinaries! We don't get our 87 89 91 octane gas right off the boat! We refine it to produce the final product... gasoline. But thanks to the government, and farmers selling out, we now have ethanol. Ethanol makes up about 10% of the final product and approved to go to 15%! Ethanol is the reason gas is high in the first place. Here is the chain of events. Farmers sell corn to the refinaries. Refinaries process the corn to make ethanol (alcohol). This is corn that will not be used for human consumption or even animal feed. Which then causes food prices to go up. So... back to ethanol! This stuff is VERY bad for any engine! Here is the thing. Ethanol starts to breakdown (phase seperation) as soon as it has been produced. Ethanol fuels start to lose 1 octane point as early as 2 weeks and will continue to drop every 2-4 weeks. Notice the black sout at the end of your exhaust? Check engine light for emissions? Very POOR gas mileage? Not only are you paying more for gas (and getting less of it!), you are paying more for food, and now more for automotive repairs! We can go about pointing the finger at Iran, but its our own government and industry that is to blame! Unless we stand up and do something (like the brave middle eastern people) this country wil be no more! Revolution? Think about what the government would do if we start to protest and fight! You bet they would rule with an iron fist like the governments of Egypt, Libya, and Syria. So before we blame the middle east for anything, THINK!

    March 10, 2012 at 10:05 am |
  16. Bob

    How come no one mentions that OUR oil companies are making billions upon billions in pure profits EVERY year and their profit goes up my Billions every year. Also, no one mentions why they don't spend some of this HUGE profit and build refineries so shutting one down does not up the price. We could also regulate (sorry Republicans) speculators who drive the price up a lot more than anyone is saying. Perhaps if the Goverment stopped the use of gasoline engines in say 2025 we would come up alternate energy which is impossible when the oil companies are in control of our politicans.

    March 10, 2012 at 11:49 am |
  17. Tim

    I agree with Matt we need to do something besides complain. But the fact is at this point the electric cars are out of reach, and there is usually a few thousand due at signing. Also at $40,000 its cheeper to buy gas! I would encourage those who are willing to do something to determine the cost of the current car they have, Payment, Gas, Insurance and repairs. Then determine what they can afford in a more economical car. I was driving a F150 at 16MPG (paid in full) and spending 225 in gas. I now drive a SMART CAR (not for everyone) and pay $125 a month for the car and put about $80 a month in gas in it. A win for me now and in the future even more savings when gas goes even higher. There are many smaller economical cars out there that can be purchased for less than $16000 and if you have a decent trade in will come out with a fairly low car payment. May not work out for everyone but if it fits your situation go for it and reap the benefits! Sometimes it’s cheaper to keep the paid for car and take the hit on gas!

    March 10, 2012 at 12:10 pm |
  18. iran and the shiiazim are evil attack iran now and we will get red of syria and all the terrorists

    this is to prepared for the attack on iran so usa can have more in store...and then obama the half muslim president use this is as a tool for his election again, as before his ellection he will lower the price to show the people thats he is doing something ...mmmmmmmmmmmmm
    dont allow iran to enter the immunity zone in any price.................Imagine if hitler did that you , your mothers and sisters and all your family will be slaves to the nazzies...iran muslims evil thugs of shiia cults are worse than hitler , make no mistake iran will use any thing because they want to start a war as this is will bring what so called AL MAHDI AL is like the shiia massaiua to them , and the only way the MAHDI WILL COME BACK IS BY WAR, KILLING ZENA MOTAA ADULTERY AND CAIOUS thats what the sick shiia doctorine says in the all shiia and remove them from this earth and send them to the 4o vergins that they are waiting for...even some are dreaming to sleep with vergin mary in heaven cause she is vergin , so they pray extra prayers to see who is the one will be the lucky one to sleep with her in heaven that what they teach.

    March 10, 2012 at 12:25 pm |
  19. attack russian interests now

    the muslims and arabs should attack russian interests any where every where inbcluding all embassies as russia veto on syria allow the killing of 17,000 women and children on the hands of the terrorists regieme of bashar al kalb of syria and hizboallah those evil getting weapons from evil russia and money from the great evil iran to kill daily backed by the evil iraqi shiia who provide men and shiia thugs to cross to syria and kill sunni...syria must be attacked if i was a leader in the middleast i wage war aganist russia and now in every mean possible until i get red of those communists puten and his followers...

    March 10, 2012 at 12:43 pm |
  20. P. Banerji

    Oil should be an important factor of national security. I don't understand why only a few private companies are allowed to make such huge profits, while the ever increasing oil prices threaten to jeoparidze the US economic recovery and national security ?

    March 10, 2012 at 12:50 pm |
  21. hstryrepeats

    Another shallow article that fails to mention certain facts. 1) currently the USA exporting more oil than it has in decades while the amount of oil used by the USA is actually falling. The reason for this is because the USA has abundant natural gas which makes it cheaper to produce petroleum from shale using fracking and other technology. 2) The situation in Iran has little to do with the price of oil. The companies that supply oil to the world typically use different reasons to artificially inflate prices and there is a pattern of rising and falling prices. This particular author obviously has issues with Iran. As for future demand for oil, it will undoubtedly rise but so will the supply, at least for a limited period of time as long as the supply of oil bearing shale and other harder to get petroleum supplies last.

    March 10, 2012 at 1:35 pm |
  22. Rich

    The U.S needs to identify oil products as what they are, U.S. Natural resources, property of U.S citizens. As such any export of oil products (oil, gasoline, natural gas) should be prohibited, with very few exceptions. Any oil producers drilling on U.S. property can only be able to sell it in the U.S. The U.S. companies are getting tax credits for drilling for oil, therefore they should not be allowed to cap off producing wells just because its cheaper to buy from overseas countries. Saudi Abrabia is using the price of oil to finance terrorists around the world, so in reallity the world is supporting terrorism by purchasing oil from Saudi Abrabia. OPEC is driving up the price of oil to whatever they want by artificially controlling the price of oil with a monoply controlling production levels.
    We also need to mention the oil companies keep lobbying congress to increase the restrictions on using coal. If we used reallistic limits on coal we could cut our oil requirements by 50%. The oil companies wouldn't like that at all.

    March 10, 2012 at 1:40 pm |
  23. W8a2nd

    Spoken like the true shill he is.... for Aipac and the war mongers in the Israeli government. It's not Iran, Iran, Iran. The threat of war is coming directly from the mouths of Aipac and Natanyehu. Hasn't he been watching the news in the last week? (Aipac meeting, Netenyehu visit to US) Why does Zakaria ignore the obvious? Because he is a shill for the real war mongers.

    March 10, 2012 at 1:48 pm |
    • Mohammad A Dar

      Do not expect any thing better from hindu Jew's, criminal self centered, neither they are what they claim to be nor they live by what they claim in their hindu Judaism, filthy self center ism, way of hindu Jew's, criminal self centered, live by hindu soul, filthy desire and do any thing to satisfy, hindu soul, desire in their hinduism, criminality. instigators of hinduism, war among humanity for ages, by claiming to be , what they never are, obedient to truth absolute.

      March 10, 2012 at 4:02 pm |
      • JustLiberty

        Hindu Jews? That's got to be a large group of people!

        March 10, 2012 at 7:14 pm |
  24. Guest

    Kony 2012; Spread the word and soon you will be paying less for oil.

    March 10, 2012 at 1:54 pm |
  25. Jim

    Its just crap Iran tried to start. Their hurting so they want to try to hurt the USA. And guess what? Hope,fear and saber rattling has done it. That and the fact the US oil companies are running production well below what they could. They match production to demand so as to keep the price there. Then sell any excess to the world market. That way theres never too much to drive the price down. Its simple.

    March 10, 2012 at 3:21 pm |

    Our great friend who call themselves “ We are you “ and “ You are us” and we cannot wait. We are now paying high prices for this heighten stupidity with high gas prices. Israel thinks they can play Bush Era tactics of fear, speculation and emotionally charge this country into another war. Israel is playing a risky game of politicizing the issue, instead of working for a solution within the region. When we thought they got it then they want to start the arms race in the region.

    US needs to focus on building and becoming an economic powerhouse and we know we are not out of the woods yet. Markets are so much volatile. We are late in the game with China & Russia. We need to lock our targets with China and Russia. I think we took the right step with North K and need to separate them from China. We also need to be careful and not give away China and Russia with another North K in Persian region.

    March 10, 2012 at 4:22 pm |
    • Mohammad A Dar

      Do not expect any thing better from hindu Jew's, criminal self centered, neither they are what they claim to be nor they live by what they claim in their hindu Judaism, filthy self center ism, way of hindu Jew's, criminal self centered, live by hindu soul, filthy desire and do any thing to satisfy, hindu soul, desire in their hinduism, criminality. instigators of hinduism, war among humanity for ages, by claiming to be , what they never are, obedient to truth absolute.There is not a country in the world, where these hindu Jew's , racist self centered set their hindu criminal foot, and nation was not destroyed.

      March 10, 2012 at 5:07 pm |
  27. JPMN

    The price of oil is high for one reason, greed. They drill it for $4 a barrel and sell it to us for $124. As long as they can get away with it they will. They will keep making more excuses for the rise in prices. But we can't complain...after all it is free enterprise at it's best!

    March 10, 2012 at 4:45 pm |
  28. rlm

    I thought it was determined back in 2004-2008 that all oil prices were controlled by bush and cheney

    March 10, 2012 at 5:30 pm |
  29. Pete

    False. The main reason for oil increasing is global speculation. We are not going to war with Iran unless Rick Santorum, Mitt Romney or Newt Gingrich get into the White House and that just ain't going to happen. Speculation increases the cost of oil, but it will eventually ease.

    March 10, 2012 at 8:13 pm |
    • Najda

      "The main reason for oil increasing is global speculation."
      Oil increasing what Abdul?

      March 12, 2012 at 5:44 pm |
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