More Drilling Won’t Shield U.S. Consumers From Oil Price Shocks

Another month, another distressing Consumer Price Index report. As the war in Iran drags on, inflation in the United States is remaining stubbornly high, driven in large part by sky-high food and energy costs. Overall, prices rose four-tenths of a percent over the last month, and are expected to finish the year at a four percent increase as compared to 2025 – a blistering increase that reflected itself at the polls in last week’s midterm elections, where a blue wave has largely been viewed as a rebuke of Trump, his war in Iran, and his policies’ overall impact on the economy.At the same time, despite relatively strong jobs numbers, wages have remained stagnant. “That paints a dreary picture for Americans struggling with high costs, who likely won't feel any relief at the pump in the near future — especially as more potential military action looms [in Iran],” Business Insider reported in response to October’s Consumer Price Index report. “For everyday Americans, all of these international strains amount to what is, essentially, a pay cut,” the article goes on to say.In an interview with PBS News, Austan Goolsbee of the Federal Reserve Bank of Chicago spoke with a high degree of concern about the persistence of inflation in the economy, indicating that ongoing impacts from the war in Iran are to be expected – especially where high energy prices are concerned – but says that other impacts, such as high prices from tariffs, should have faded by now. And, worryingly, they simply have not.“Now, what we have been dealing with is a series of shocks – some from oil prices, some from tariffs, now some from the demand side, and a lot of those things were supposed to go away,” Goolsbee told PBS. “And they might still go away and prove transitory, but whenever you start hearing the word transitory, the hair on your neck should be standing up a little bit, because we went through that, where it was supposed to go away. And we found out that, when you have major disruptions to the supply chain, those oftentimes end up being far more persistent than [...] the theory says they're supposed to be.”The demand-side issues that Goolsbee refers to include the mounting issue of skyrocketing energy demand to power the artificial intelligence boom, which has pushed energy prices even higher in the regions of the country experiencing data center hyperscaling. The sector has an overall inflationary effect beyond energy rates as well, as the bailout boom drives up costs for a wide range of services and goods including construction, computers, electrical equipment, and computer chips.While these inflationary impacts have been widely seen as a result of the Trump administration’s leadership, as exemplified by last week’s stunning midterm election blowout in favor of Democratic candidates, the issues extend far beyond the reach of a single political regime. Instead, according to Tim McDonnell, the climate and energy editor for the nonpartisan news outlet Semafor, the issue is that oil and gas, the stalwart energy resources that made the United States the premier global superpower, are no longer a reliable source of energy security.“The inherent volatility of oil and gas prices is a persistent vulnerability in the US economy that can only be solved by limiting exposure to these energy sources,” McDonnell wrote in an op-ed leading up to the mid-term elections. “Domestic drilling has put more of the supply-demand balance under US control, but can’t shield American consumers from global price turmoil,” he goes on to say.The outsized impact of oil and gas market volatility, and its ability to make or break political administrations despite their relatively limited control, is nothing new. As long as oil and gas have dominated the global energy mix, geopolitics have held enormous and dangerous sway over whole economies and political regimes thanks to an impact that European Central Bank official Isabel Schnabel has called ‘fossilflation.’By Haley Zaremba for Oilprice.comMore Top Reads From Oilprice.comUK Vows Global Climate Leadership as PM Doubles Down on Net ZeroCentral Asia’s B20 Message to Washington: Let’s Make DealsEurope Enters Winter With Its Lowest Gas Inventory of the 2020s