What's going on?
On Tuesday, the price of a barrel of oil rose to its highest level this year – partly thanks to the US’s plans to truncate oil supply from Iran (tweet this).
What does this mean?
In November, the US reimposed trading sanctions on Iran – but it also introduced waivers that allowed eight countries, which buy the lion’s share of Iran’s oil, to continue buying without retribution. Now, those waivers are about to expire without renewal, effectively outlawing oil purchases from Iran.
Six months ago, investors worried there was too much oil being produced and not enough demand, pushing the oil price down. The tables have now turned: without Iran’s oil, there’s a risk of shortages – which led investors to pump oil’s price back up.
Why should I care?
For markets: Saudi Arabia slides in to win.
Saudi Arabia has said it’s ready to produce more oil to fill the well left by Iran. With black gold’s now-higher price, doing so should help boost Saudi Arabia’s largely oil-dependent (but changing) economy. Some analysts think that oil’s recent rise will soon give way to declines, partly because there’s an oily substitute for Iran in waiting. Until then, investors may be buying Russian assets – according to Bloomberg, their values tend to follow the oil price (oil and gas production is a major part of Russia’s economy). And investors might be avoiding Indian assets: the country imports most of its energy, so higher prices will weigh on its economy.
For you personally: Higher oil prices could cost you.
The oil price’s slide late last year slowed “inflation” (the rate at which the prices of goods and services rise). Coupled with rising wages, this meant people were able to spend more. But that trend could soon reverse: oil’s price is now up 40% this year, which could push product prices higher (it’ll cost more to deliver goods to stores, and oil is used to make several products) and stymie your ability to spend on non-essentials.