The price of gasoline in the United States is not 'independent'; rather, it is dependent on global oil markets

I still have a 1979 bookmark that says, “INFLATION IS A PAIN IN THE GAS.”

Weirdly comical. Oil market gyrations affect U.S. gasoline prices, which are determined by global supply and demand, not domestic demand.

What actually happened in 1978–80, an important German study from Bruegel reminds us, was the Iranian revolution and the Iran‐​Iraq War: “The 1978 Iranian revolution decreased global supply by 4 percent and led to a price increase of 57 percent. The 1980 Iran‐​Iraq war decreased global supply by 4 percent and led to a price increase of 45 percent.”

What happened to global oil markets in 2020 was a global pandemic, with oil prices decreasing and a significant loss of oil and gas production capacity in the United States and other countries. Government lockdown programs were phased down in 2021, which allowed businesses and transportation to recover more quickly than oil production could. China, on the other hand, has recently reverted to archaic lockdown systems, which could reduce global demand for oil and other commodities by decreasing the Chinese economy.

While partisans wrongly deny the link between war and oil markets, they instead blame President Biden for U.S. gasoline prices – which, like in 1979, are deemed synonymous with "inflation," what happened to crude oil and gasoline prices in 2022 was the Russian invasion of Ukraine.

The oil futures market has recently been shaken by EU sanctions that aim to reduce Russia's global oil supply.

Yesterday, the retail price of gasoline in the United States hit a record high of $4.37 a gallon, while the price of WTI crude oil futures fell by 6.1% as a result of worldwide news. Due to "hurdles to an EU embargo on Russian oil and the continuous spread of COVID-19 in China," crude oil prices were substantially lower in mid-morning Asian trade May 10, extending severe overnight falls." Brussels has halted its intentions to prevent EU vessels from carrying Russian crude as it battles to push through its newest sanctions package because of member states' concerns about the economic impact of the measures, according to The Financial Times.

However, a ban on Russian oil would not prevent Russia from exporting entirely—the country would instead find clients elsewhere (such as China and India), as it currently does—but an embargo would undoubtedly increase the discount on Russian oil. The price of oil would rise if Russia's exports declined, unless other producers, such as Saudi Arabia, Iran, and Venezuela, decided to raise production to counterbalance the loss in Russian exports."

If an EU ban on Russian oil has any effect at all, it has been followed by lower world oil prices and higher prices for US Treasuries and stocks because of the unexpected appearance of a far reduced probability. If the price of crude oil continues to fall around the world and in the United States, then gasoline prices in the United States will follow suit.

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