Iran’s ongoing threats to disrupt the global oil trade, combined with local problems among some of the smaller OPEC members, have pushed the price of a barrel of WTI crude oil to more than 106 dollars, a nine-month high and up 40 percent since the September low. That has helped drive the average price of a gallon of regular gasoline paid by motorist in the United States to USD 3.58, a near 12 percent increase in just two months. In some states the increase is even higher, with data from the US Energy Information Administration (EIA) showing that a motorist in California, where fuel generally tends to be more expensive than elsewhere, now pays more than 4 dollars per gallon and has seen the price rise rapidly over the last few weeks. The current price of oil is only causing a modest drag on the economy, but as the tensions in Iran rise, so does the worry that a big jump in prices could present a significant challenge to the US recovery, which has been gaining some traction during the past few months. According to rough estimates made by my colleague John Hardy, every extra 10 cents at the pump would result in a drag on consumer spending to the tune of USD 18 billion per year. With the driving season and peak demand still months away, this is not good news for US consumers. It is also an unwelcome development for President Obama, with the presidential election in November approaching. That said, the price of gasoline has reached and breached four dollars twice before in recent years, so the effect may be diminishing. But it does raise the question of how much further gasoline prices can rise before they become an actual, not just a physiological, drag on the economy, just like we witnessed last year during and after the Libyan conflict.

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