The oil shock

Tuesday 10th March 2026

Up like a rocket, down like a feather. That $55 a barrel oil price we saw in December is now ancient history.

The U.S. benchmark, West Texas Intermediate, hit $119 overnight. The average price at the gasoline pump for Americans has already gone from $2.80 a gallon in January--a four-year low--to $3.47 this morning. It could easily hit $4 within the next few days.

And while that has resulted in several bad days for the stock market, the damage for now has been relatively mild. The S&P 500 is down about 5% from its late January highs, when it crossed above 7000 for the first time. It could certainly get worse. "Every day that the Strait [of Hormuz] remains impassable," the risks of a "Stagflating 1970s Redux" are growing, Yardeni Research warned last night.

And each day that the Strait remains impassable, the challenges grow for oil producers. Gulf oil producers like Iraq and Kuwait are already starting to shut down production because they can't get the oil out. The UAE could be next, then Qatar, then even Saudi Arabia if this goes on for a few more weeks, per Societe Generale. Turning production back on is a whole other thing, and multi-month outages typically restore only 80-95% of prior output, the firm cautions.

Every day this situation lasts, in other words, means less likelihood of a swift reversal lower in oil prices. In 2022, it took twelve days for oil prices (Brent, the international benchmark) to peak after Russia invaded Ukraine, but 148 days for prices to fall back to prior levels, airline analyst Conor Cunningham of Melius Research noted yesterday.

For now, there are three main reasons the U.S. economy can absorb this oil price shock without too much damage. One, our energy exposure has continued to decline over the years. Two, we are seeing strong productivity growth right now. Three, we are now a huge producer of energy.

"Energy's consumer bite is down a by a third since the 1991 Gulf War," to about 3% of income, wrote Piper Sandler's Nancy Lazar over the weekend. Plus, productivity is growing nearly 3% year-on-year, versus the virtually flat readings we saw in the early '90s, she adds. Our structurally higher capex now seems to be a reason for that. And today, we are a net exporter of petroleum.

Michael Darda of Roth MKM, who is joining us on the show today, makes very similar points. "There are some important macro positives that have flown under the radar," specifically the healthy productivity growth we've been seeing for five years straight now, he says. It will translate into higher real disposable income per capita over the next decade, even with higher oil and gasoline prices.

All of which is to say, quite obviously, that the quicker this oil price spike can pass, the better, to avoid an outcome that would undermine the relatively strong position the U.S. otherwise appears to be in.

From the Desk of Kelly Evans.

CNBC

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