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. Texan

    Totally agree with JB!

    March 11, 2012 at 1:28 pm |
    • Khaled

      Totally agree with BJ!

      March 11, 2012 at 4:37 pm |
  2. Floridian

    Oil prices are going up coz of wall street

    March 11, 2012 at 2:12 pm |
    • Khaled

      Oil prices are going up coz of Iran and the endless fear mongering.

      March 11, 2012 at 4:34 pm |
  3. chris

    US oil production is at an 8 year high. Supplies are at or near historical highs. The US is now a net exporter or gasoline. The US consumption of oil is down nearly 8% in the last two years. Emerging economies such as china and india grossly exaggerated and their growth is slowing. European economies are in shambles. EIA and other forecasts show flat demand in the next year. So Why is oil and gas prices really climbing CNN? Wall Street oil speculation plan and simple. A barrel of oil is trades 30 times before it is ever pumped out of the ground and large investment banks and hedge funds are pumping up the price to line their pockets.

    March 11, 2012 at 2:26 pm |
    • Mobius007

      Well, the IEA and EIA have both said that global demand in 2012 will be higher than last year, by about 1 million barrels per day (averaging the two estimates).

      Also, China's imports for oil in February hit an ALL TIME RECORD, so things don't appear to be slowing in Asian economies all that much:

      BEIJING (Reuters): China imported a record 5.95 million barrels per day of crude oil in February, 18.5 percent higher than a year earlier, data from China's General Administration of Customs showed on Saturday.

      The record imports came as domestic crude oil production rose only 1.6 percent in February year-on-year, and fell 1.1 percent in the first two months combined.

      March 11, 2012 at 5:12 pm |
    • Mobius007

      Chris, I appreciate your passion on this but you don't understand how futures work. It is known as a "zero sum game", meaning that for every futures contract buyer there is a corresponding seller. They are both betting on the price movement of the commodity, but one person makes money and one person looses money.

      It's ultimately no more complicated than that, although there are many, many parties who want you to believe otherwise (for their own reasons).

      Definition of 'Zero-Sum Game'
      A situation in which one participant's gains result only from another participant's equivalent losses. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.

      Investopedia explains 'Zero-Sum Game'
      Options and future contracts are examples of zero-sum games (excluding costs). For every person who gains on a contract, there is a counter-party who loses. Gambling is also an example of a zero-sum game.

      March 11, 2012 at 5:14 pm |
  4. Engineering Student

    Is the price of gas directly proportional to the price of oil? When the price of oil skyrocketed in 2008 so did the price of gas; when the price of oil went back down, why didnt the price of gas?

    Why haven't more refinery permits been allowed? The supply of gasoline is low, which influences higher prices as i learned in an introductory economics course. If gas prices spike because a refinery is closed for two weeks due to "maintenance" then we should consider allowing another refinery to be build?

    If we allowed that refinery to be built in the northwest then the XL pipeline wouldn't have been as big of an issue because it wouldn't have had to cross the entire country. Also, if the refinery was allowed to be built close enough to a port, it would allow canada to export their oil which is what i think they want to do.

    I'm no expert, but these topics have come up in some of my courses and I believe warrant a serious discussion.

    March 11, 2012 at 2:32 pm |
    • Engineering Student

      Elaborating on the lack of refinery permits, one of my professors said that a permit hasn't been allowed in like 25ish years.

      March 11, 2012 at 2:34 pm |
      • Engineering Student

        I decided to verify, a quick google search landed me on a site called http://www.cnsnews.com

        "Also according to NPRA, the last time a new oil refinery was built in the United States was 1993, when a small facility was built in Valdez, Alaska. The last time a new large oil refinery was built in the United States was 1976, says NPRA. Older U.S. refineries, however, have been upgraded and expanded in recent years."

        March 11, 2012 at 2:36 pm |
    • Khaled

      You do not need anyone to talk to, do you Abdul. I wonder if, in fact, you do go to university, how a university is accredited in Iran. Can you explain that?

      March 11, 2012 at 4:25 pm |
      • Engineering Student

        What do you get out of trolling the comment section of a news article? My sister's youngest child likes to act out to get attention sometimes.

        March 11, 2012 at 4:44 pm |
      • Khaled

        I so enjoy calling an Islamist an Islamist. You think you can hide behind lies and deception. You are a Joke.

        March 11, 2012 at 5:02 pm |
    • chris

      Student:

      Last month the US largest export was refined gasoline. The US has been increasing its exports of gas consistently for years. We are awash in crude oil at the Cushing OK depot and we still have plenty of gas. We don't need refineries and oil companies don't want to build them. Why would Exxon want to build a 2 billion dollar refinery and push more gas into the market that we don't need. Usage is down nearly 8% in the US in the last two years. Oil producers are more than happy to sit back and watch billions of dollars get piled into the futures market by investment banks that artificially pushes up the price well beyond supply and demand fundamentals and reap the upstream and downstream profits. Get speculation out of the oil market and oil drops to $65 brl in two months and gas will be $2.25 by the summer.

      March 11, 2012 at 6:55 pm |
  5. manumus

    whats with these republicans and their pipeline from canada ....im in quebec and im paying 1.35 a litre wich comes out to 5.40 a gallon ....why do they freak out with 4.00 a gallon prices...they should be paying more than us if they think canadians have so much oil that we would be shipping it out in piplines ....wasssup with this shhhhh...

    March 11, 2012 at 2:58 pm |
  6. WhoCares

    I look at it this way; if you wish to drive your gas guzzling "terrorist supporting tank," by all means have at it. I'll continue driving my not so eco friendly motorcycle thats getting high 40's a gallon, and the car that's 7 years old and still getting high 30's per gallon when I need to. Oh wait that's right the P.O.U.S. called us polluters because we wouldn't buy their government motors crap that only gets in the 20's, what a joke!

    March 11, 2012 at 4:09 pm |
  7. rika33

    FYI – all the GOP candidates (Paul excluded – he not really one of them) are doing a lot a sabre rattling war talk to drive the price of Oil up and stall the economy. In addition to the specualtors balme those who atre talking war – its not in the US interest – its solety their political interest. America call them on it – they are selling you out to stall the economy for votes.

    March 11, 2012 at 6:32 pm |
    • Khaled

      That is quite the ruse you have discovered. Did you figure this out with your superior intelligence or is that what the imam said?

      March 11, 2012 at 6:51 pm |
  8. james

    al jazeera is showing iran and a scientist by the name of Khan who got the isotopes from ucone a nuclear company that facilitates isotopes where khan got them for iran and the blue print on how to make nuclear weapons as well as for north korea and afgh IAEA Robert Kelly says and shows proof of under ground facilities where iran is building such weapons

    March 11, 2012 at 6:52 pm |
  9. james

    rika33 go read the united states energy information administrating almost half of 4 oil producing countries have had oil production cut due to fighting in there countries DOES ANYONE ON THIS SITE HAVE HARD FACTS BACKING UP THERE INFORMATION MY GOODNESS NOO EVERYONE TALKS WITHOUT FACTS

    March 11, 2012 at 6:54 pm |
    • Khaled

      Well my goodness, that is quite the ruse you have discovered.
      Did you figure this out with your superior intelligence or is that what the imam said?

      March 11, 2012 at 6:55 pm |
    • Khaled

      Sorry James I go carried away.
      You, I agree with.

      March 11, 2012 at 6:59 pm |
  10. james

    manumus BECAUSE CHEAP ENERGY HELPS GROWING NATIONS USE CAPITAL TOWARD JOB CREATION AND PRODUCT PURCHASING IN TURN ALLOWING MORE PRODUCTS TO BE MANUFACTURED AND BOUGHT

    March 11, 2012 at 6:55 pm |
  11. james

    WhoCares LET ME KNOW WHEN U HAUL 10 TONS OF MATERIAL OR PRODUCE WITH UR B.S MOTOR CYCLE LMAO

    March 11, 2012 at 6:57 pm |
    • Khaled

      Well I bet he can put the 2 wives and 7 kids on that motocycle.

      March 11, 2012 at 7:02 pm |
      • WhoCares

        Na no kids or wives. Funny though I have seen that in India, Thailand. My Fav is the China delivery guy with 4 dozen boxes balance on the back:)

        March 11, 2012 at 7:23 pm |
      • Khaled

        I like your comeback.

        March 11, 2012 at 7:40 pm |
    • WhoCares

      Sorry James if you didn't find the humor in my jest.:) The ignorance of America thinking they alone are owed something. I support the use of rail, and trucking, but the "Urban Assault Vehicle" really! America still thinks this is the 1950's and wants cheap gas, as you have stated "we are in a global economy."

      March 11, 2012 at 7:46 pm |
      • Najda

        Okay I bite, so what do you think the Americans think they are owed?

        March 12, 2012 at 5:36 pm |
  12. james

    rika33 RON PAUL IS AN ISOLATIONISHED HE DOESNT CARE IF THE MIDDLE EAST BURNS TO THE GROUND AS LONG AS UNITED STATES DOESNT HAVE TO HELP OR PAY OR INVOLVE TROOPS TO SAVE MIDDLE EASTERN LIVES LOL

    March 11, 2012 at 7:00 pm |
  13. james

    chris go read the hydrogen economy you will learn a thing or 2 about energy CHINA and INDIA are the biggest buyers of energy and if china where to use the amount of energy the united states uses there would be enough oil for china no less the rest of world and oil production is down by nearly 3 million barrels of oil from its peek of 10 million barrels a day and hint america isnt the biggest user of oil my friend its india its china its brazil wake up we arent the biggest growing economies in the world thats so people that say dumb stuff like that in the media need to learn the numbers and oil production has increases 10 fold on private lands from the 1990s up until now not because of obama obama has ZERO control over private lands only federal and federal drilling is down over 90 percent does ANYONE READ OR DO RESEARCH OR FACT FINDING TO BACK UP THERE ARGUMENT WOW AMAZING

    March 11, 2012 at 7:04 pm |
  14. james

    ENERGY CONTRACTS AS WELL AS ALL FUTURES CONTRACTS ARE BASED ON FUTURE SUPPLY AND DEMAND AS WELL AS PARTIAL CURRENT SUPPLY AND DEMAND AND SUPPLIES CURRENTLY ARE OFF ON AVERAGE 35-50 PERCENT AND A POSSIBLE CUT OFF WITH IRAN IN THE STRAITS OF HARMUTH FACTOR IN THE SUPPLY SIDE

    March 11, 2012 at 7:07 pm |
  15. james

    Realist because we are a global economy and as a free market the highest payer gets the goods so if iran the 4th largest economy based on the mundi index that would leave a shortage of oil supply causing a bidding war for oil like nike does with its sneakers drives demand by limiting supply to consumers guaranteeing a a higher price for a product that is abundant how abundant oil is long term is questionable but currently its abundant

    March 11, 2012 at 7:15 pm |
  16. Jeff

    What gets me is the fact when BUSH was in office he had states row back gas taxes. He released millions of federal oil reserves. What has Obama done....NOTHING!!!

    March 11, 2012 at 7:49 pm |
    • WhoCares

      Jeff, why would you want to open the strategic reserve? Big oil wont like that, since it will hurt their bottom line, and your 401K. Second, if it's grid lock on both sides of the isle for a meaningful "Cafe Standard" increase less than twenty years out, let the Global market do it's job! If you can't effect change of the American mindset, nor get congress to something, let price dictate change! The P.O.U.S. is using the E.U. game plan from 20 years ago, minus the Tax the Sh(* out of gas theory.

      March 11, 2012 at 8:23 pm |
      • Ron

        Jim/WhoCares – sorry to burst your bubbles, but President Obama did indeed release oil from the SPR – but had no lasting effect – which is exactly what you would expect as that oil had to be rebought at a later date and prices actually ended up higher because of it.

        Oil prices are high because demand is high. The Chindians want lots of oil. And they are just starting their growth curve – 20 years from now they will be using 3,4,5x more oil per capita.

        If you want to whine about it the inevitable, that's your prerogative. If you want to benefit from it, invest in oil producers...

        March 12, 2012 at 10:38 pm |
  17. Ben

    Bush is still the president. He is responsible for the rise of oil price. Obama is just a figure head.

    March 11, 2012 at 7:52 pm |
  18. EricC

    Lets talk about the Bush/Cheney years. $50/barrel was a dip! Blame the GOP!!!

    http://www.google.com/imgres?imgurl=http://bespokeinvest.typepad.com/bespoke/images/2008/05/21/oilparabolic1.png&imgrefurl=http://bespokeinvest.typepad.com/bespoke/2008/05/oil-price-chart.html&h=295&w=450&sz=62&tbnid=Y3fguSczPqabWM:&tbnh=79&tbnw=120&zoom=1&docid=3SXE1WodL7JdXM&sa=X&ei=2T1dT4jhKI2n0AGhy9GdCw&ved=0CEIQ9QEwAA&dur=112

    March 11, 2012 at 8:10 pm |
  19. denny

    Thank you Obama

    March 11, 2012 at 8:13 pm |
  20. Dave

    The real reason in the US why the oil is so high is wall street and the spec market, Iran has nothing to do with this, pure greed hits america once again and our govt does nothing about this, yet again.

    March 11, 2012 at 9:18 pm |
  21. Ray

    being a world wide comodity, oil is boutght and sold on a global scale faster then corn and wheat.The demand goes up the more the population increases .The higher demand will deplete the worlds oil reserves by 2050 and underground wells will run dry by the end of this century.There are alternative resources we could use,the energy from ocean current,wind ,sola rand possibly cold fussion.

    March 11, 2012 at 9:26 pm |
  22. james

    WhoCares america is sitting on the largest stock pile of oil natural gas and coal and our president doesnt allow oil companies to pull it out of the ground and ANYONE WITH BRAINS WILL LISTEN TO T.BOON PICKENS WHEN HE EXPLAINS THAT THERE ISNT 1 ALTERNATIVE ENERGY THAT CAUSES THE FORCE FOR COMBUSTION THAN OIL AND GAS NATURAL GAS DOESNT HAVE A SYSTEM TO DELIVER THE PRODUCT OR THE PRODUCTS TO USE THE NATURAL GAS WITH ITS TO FUNNY HOW MANY PEOPLE COMMENT AND DONT TELL THE WHOLE TRUTH LOLOL WAY TO FUNNY AND EVERY SINGLE ADMINISTRATION GOING BACK 40 YRS ALWAYS DOES THE SAME EXCUSE OH SPECULATORS BLAH BLAH LOLOL YET OBAMA WONT ALLOW OIL DRILLING ON FEDERAL LANDS YOU WANNA DRIVE PRICE DOWN INCREASE SUPPLY ABOVE DEMAND WE HAVENT EVERYONE THINKS DEMAND BASED SOLEY ON AMERICAN DEMAND WE ARE IN A GLOBAL DEMAND AMERICAN DEMAND HAS DECLINED WHILE ASIA AND INDIA AND LATIN AMERICA HAVE INCREASES ABOVE OUR PRE DECLINE DEMANDS LOLOL TOO FUNNY WHEN I LISTEN TO COMMENTS AND OBAMA WANTS TO USE NATURAL GAS GUESS WHAT HOW THE HELL DID WE GET NATURAL GAS FROM DRILLING!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! DING DING

    March 11, 2012 at 9:49 pm |
    • WhoCares

      James, what's rule #1 of war? Just curious, would it not make more sense to pay a little higher price on the global market, and make the other Bast)(*D pay by expending his resources?

      March 11, 2012 at 10:16 pm |
  23. james

    DAVE go READ lolol futures contracts have 2 sides a up and down side you make money both ways oil fluxuates up and down so to say its a one sided profit is coming from people who dont understand futures cointracts lolol or how the market works its easy to blame someone than admit what the real problem is and fix it when u have a president who wants to run our country on pixy dust how the hell do you think europe and asia run there countries on oil gas coal nuclear wind solar allllllllllllllllll sources of energy because there isnt 1 alternative energy that does it all its like investing you dont invest in just one stock or sector or invest soley in the stock market u have a mix bag of investments same thing with energy but u cant cut off oil or gas otherwise u run the rick of what we have now u have to increase supply while building alternatives into the system you cant just cut a junkie off of his or her drugs u have to ween them off slowly daa

    March 11, 2012 at 9:56 pm |
  24. james

    risk

    March 11, 2012 at 9:58 pm |
  25. james

    does anyone know the draw backs to the alternative sources they quote lolol like i said READ!!!!!!!!!!!!!!!!!do RESEARCH THERE ISNT ONE SOURCE THAT U CAN IMPLEMENT AND IT WILL TAKE OIL OR GAS OUT OF THE PICTURE TO FUNNY LOLOL ALL THE ALTERNATIVE SOURCES LACK THE POWER IN GAS AND OIL AND OUR COUNTRIES IS 20 YRS OR MORE AWAY FROM REDESIGNING RE ENGINEERING OUR HOMES CITIES TOWNS STATES AROUND AN ALTERNATIVE LIFE STYLE ITS A CHANGE OF LIFE STYLE AND COMMUNITY STRUCTURE ITS EASY TO SAY USE IT USE IT ON WHAT DO YOU SEE NATURAL GAS STATIONS DOWN THE BLOCK NOOOOOOOOOOO!!!!!!!!!!! DO YOU SEE A POWER GRID UPTO DATE NOOO!!! DO U SEE NUCLEAR PLANTS TO OFF SET THE LOSS OF COMBUSTION POWER FROM GAS AND OIL AND COAL NO!!!! WE JUST STARTED TO BUILD NUCLEAR PLANTS AFTER 30 YRS 4 AND IT TAKES 7 YRS TO BUILD A NUCLEAR PLANT

    March 11, 2012 at 10:02 pm |
  26. Bill

    SPECULATORS.

    Article over. Pay me, CNN?

    March 11, 2012 at 10:05 pm |
  27. james

    OBAMA NEEDS TO WORK FOR WALT DISNEY BECAUSE EVERY TIME HE TELLS A STORY ITS FANTASY TIME LOLOL NOTHING HE SAYS IS ACCURATE AND TRUTHFUL HE THINKS HE IS SPRINKLING PIXY DUST ON THE HEARTS AND MINDS OF PEOPLE WHO ACTUALLY DO FIND OUT THE FACTS LOLOL FOR THEMSELVES AND IF YOU LISTEN TO HIM GIVE SPEECHES LONG ENOUGH HE ACTUALLY RATS HIMSELF OUT LOOLOL SAYS THE REPUBLICANS ARE DUSTING OFF THERE 3 POINT PLAN TO DROP GAS PRICES DRILL DRILL DRILL THAN GIVES A SPEECH A WEEK LATER ON HOW NATURAL GAS IS ABUNDANT BECAUSE OF NEW WAYS OF DRILLING WOW THE MAN IS A GENIUS LOL YEA GO FIGURE IF U DRILL FOR MORE OIL U GET MORE SUPPLY AND DRIVE DOWN PRICE LIKE NATURAL GAS WOW WHAT A SHOCKER LOL GO FIGURE

    March 11, 2012 at 10:07 pm |
  28. james

    BILL I HOPE YOU HAVE A GOOD JOB WITH UR 3RD GRADE EDUCATION LOLOL WE NEED MORE PEOPLE LIKE YOU THE DEMOCRATES NEED MORE PEOPLE LIKE YOU OBAMA NEEDS MORE PEOPLE LIKE YOU TO HELP HIM GET RE ELECTED SO HE CAN KEEP ROBBING YOU AND YOUR KIDS AND GRAND KIDS FROM PROSPERITY LOLOL

    March 11, 2012 at 10:11 pm |
  29. bonehead1

    obama's falt

    March 11, 2012 at 10:34 pm |
    • Najda

      Even my sister's youngest child is more mature than you.

      March 12, 2012 at 5:31 pm |
  30. bonehead1

    lkl

    March 11, 2012 at 10:39 pm |
1 2 3 4 5 6 7 8

Post a comment

You must be logged in to post a comment.