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Consumers bearing the cost of war with Iran
Consumers have paid an extra $8 billion in gas prices alone since the U.S. and Israel began their attacks on Iran, according to industry analysts. But gas is only the beginning. We look at how airlines are increasing their prices and how else consumers will bear the brunt of the conflict in the Middle East.
MARIN COUNTY, California - The Iran war is in its 32nd day with consumers having paid an extra $8 billion in high gas prices alone, but gas is only the beginning.
At a UPS store, fuel surcharges have been imposed for their massive fleet of trucks and planes.
This nasty bout of inflation is a painful lesson in the economics of war coming our way in a hurry and how the consumer is the one who pays for it.
Airlines raising prices
What we know:
Jet Blue says it's raising baggage prices by as much as $9 a bag to offset the 83% increase in fuel since last month.
"That's a major hit to the bottom line for airlines," said Severin Borenstein, a renowned energy and airline economist at UC Berkeley's Energy Institute at the Haas School of Business.
There will be a lot more hits from the airlines. "What they do very quickly is they start canceling flights and downsizing the aircraft they use; they don't fly so many seats and when they do that, they start raising rates." said Professor Borenstein.
Customers are being very unpleasantly surprised.
"As I was checking the prices, a banner came up on my phone saying that prices were going to surge because of this, you know, war," said Arco customer Brian Walloons.
"I've got places to go, weddings to attend and family to see. It's making the choice a lot harder of whom to choose to see because it's not affordable to get there," said Arco customer Solveig Peete.
Price of goods up
Now if it were just the pain here, we'd figure out a way to deal with it. But when the price of energy goes up across the board, then it impacts everything. Here's some of the other stuff that's going on.
"Many products are made from crude oil. Over time, what you start to see is those price increases for crude oil and refined products start showing up in many, many things that we consume," said Borenstein.
It all gets to us on ships, trains and trucks, who must raise their prices. "So those will eventually start feeding through in the price of every good that gets delivered," said Borenstein.
Products we get in Asia and Europe will rise dramatically since the liquefied natural gas they use to make electricity cannot get through the Strait of Hormuz.
"We're going to start to see substantial inflation because many goods are going to have higher costs due to the higher price of energy. And, that means we as consumers are going to pay more," said Borenstein.
Consumers paying the price
That's not what consumers want to hear. "I'm pessimistic. I think it's just going to get worse. I think it's just going to affect everything. Plus the tariffs. I think we're just really going to be hurting in the old wallet," said Arco customer Michael Carroll.
Many experts now think oil prices will stay above $100 a barrel. "You can't rule out prices staying above a hundred dollars a barrel. In fact, I wouldn't rule out prices going much higher, particularly if the war drags on and the blockade of the Strait of Hormuz continues," said Borenstein.
Tapping the Strategic Oil Reserve will take time, only coming out at a rate of one-eighth of what's been cut off and will only be temporary.
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