DETROIT \u2013 A countdown looms as the global fuel economy awaits to see if a critical oil trade will reopen in time of President Donald Trump demand.<\/p>\n
The U.S. leader gave Iran a deadline of 8 p.m. eastern time to reopen the Strait of Hormuz, a closure that is threatening wallets, businesses and the broader economy.<\/p>\n
The passage way, which is considered the world\u2019s most critical energy chokepoint, has been shut for roughly five weeks, driving fuel prices higher and putting global supply chains under severe strain.<\/p>\n
\u2018Taking a toll\u2019<\/p>\n
Robert Jackson of Detroit didn\u2019t mince words about what higher gas prices are doing to his wallet.<\/p>\n
\u201cRough. It\u2019s taking a toll on me,\u201d he said.<\/p>\n
Janice Marshall of Dearborn said her family has made a simple calculation.<\/p>\n
\u201cIf we don\u2019t have to go, we are not going,\u201d she said. \u201cThat\u2019s just wasting gas.\u201d<\/p>\n
Michigan gas prices, which at one point surged by roughly a dollar per gallon, have seen modest declines in recent days. AAA reports the statewide average is now $3.87 per gallon.<\/p>\n
Trucking companies feel the squeeze<\/p>\n
At Northfield Trucking Company, a regional carrier operating roughly 140 trucks out of a 90,000-square-foot facility, the fuel crisis is hitting daily operations hard \u2014 especially with diesel prices above $5 a gallon.<\/p>\n
President and owner Leigh Ann Frederick said she held off as long as she could before raising her rates.<\/p>\n
\u201cI initially thought this would be very short. And we\u2019re going into multiple weeks at this point. So about at the three-week mark, I called our customers and said, hey, listen, we\u2019ve waited as long as we could. We\u2019ve digested all of it we can. We\u2019re going to have to really start looking at rates in our fuel surcharge programs and so forth,\u201d she said.<\/p>\n
Frederick said her company is doing everything it can to manage costs before passing them along to customers.<\/p>\n
\u201cWe are working on trying to optimize routing, reduce idle time, really pay attention to fuel efficiency and fuel mileage,\u201d she said.<\/p>\n
But the fuel surcharge process puts companies like hers perpetually behind the curve, Frederick explained.<\/p>\n
\u201cWe get a national report that is posted every Tuesday and from there our fuel surcharge base changes and it becomes available at that point to our customer. And so, we\u2019ll always be in a lag, especially when the fuel prices are just spiking up day after day,\u201d she said.<\/p>\n
The owner said the strain isn\u2019t limited to smaller carriers.<\/p>\n
\u201cWe\u2019re always a week to two behind on trying to do that. So financially, it\u2019s a strain on our industry, especially for the small trucker. We\u2019re not very large in size comparatively. We\u2019re about 140 trucks strong. But even for trucking companies that have 1,000 trucks, they\u2019re absolutely seeing the strain,\u201d she said.<\/p>\n
She said the industry\u2019s notoriously thin margins make it impossible for trucking companies to absorb the added costs indefinitely.<\/p>\n
\u201cThe problem is with the margins, the way that the trucking company industry just runs and operates, we cannot digest those expenses,\u201d Frederick said. \u201cI just know that for a trucking company to sustain, it cannot be on them.\u201d<\/p>\n
Frederick said industry economists she\u2019s consulted have painted a sobering outlook.<\/p>\n
\u201cThey\u2019ve said that they thought it was [going to] last seven to eight months, so I\u2019ve kind of prepared for that,\u201d she said.<\/p>\n
A two-to-three week window<\/p>\n
Jason Miller, a professor of supply chain management at Michigan State University, said the U.S. has been partially shielded so far, but that buffer is running out fast.<\/p>\n
The reason the full impact hasn\u2019t hit yet comes down to oil that was already in transit when the strait closed, he explained.<\/p>\n
\u201cWe\u2019ve had oil on the water, that\u2019s why we de-sanctioned the Russian oil, we de-sanctioned the Iranian oil. And so, because of that amount of product on the water, the broader impacts really haven\u2019t been fully felt yet,\u201d he said.<\/p>\n
But Miller said that window is closing quickly.<\/p>\n
\u201cSo, I\u2019d say right now the key thing is that this crisis will progress very rapidly if the situation with Hormuz is not resolved within two or three weeks,\u201d he said. \u201cIt\u2019s just important for everybody to keep in mind, we have never seen a global energy shock of this magnitude. This far outpaces anything we have seen.\u201d<\/p>\n
Ripple effects around the world<\/p>\n
The closure isn\u2019t just a U.S. problem. Miller said the effects are already reverberating across Asia and could accelerate in Europe within days.<\/p>\n
\u201cWhat we are seeing is substantial shortages of refined petroleum products in South Asia, so Bangladesh and Oceania in terms of Australia. And we\u2019re also starting to see broader impacts in terms of petrochemical production in South Korea and Japan,\u201d he said. \u201cWhich will eventually come over to cascade and affect the U.S. because that means less plastic parts that we\u2019re importing and putting in machinery and motor vehicles and things of that sort.\u201d<\/p>\n
He said Europe faces a more immediate threat.<\/p>\n
\u201cIn Europe as well, we\u2019ll be looking at much more serious impacts within a week or two than what they\u2019ve currently experienced, heavily due to their reliance on natural gas that comes from the Middle East that has been completely bottled up,\u201d Miller said.<\/p>\n
The knock-on effects, he explained, could ripple through American manufacturing in ways consumers might not immediately recognize.<\/p>\n
\u201cJapanese plastic parts makers can\u2019t get enough plastic. So they dial down production. That now means the U.S. importer bringing those plastic components in to put in their product can\u2019t get enough. And so they run out of inventory. They may have to stop production or shift to producing something else that doesn\u2019t need those components,\u201d he said.<\/p>\n
The price of oil \u2014 and what\u2019s at stake<\/p>\n
Miller said a prolonged closure could drive prices far higher.<\/p>\n
\u201cIf we don\u2019t start to see more flow through in terms of Hormuz, or if say the Houthis would become engaged and shut off Saudi exports through the port of Yanbu through the Red Sea, you would be looking at $140, $150 a barrel oil within a week or two \u2014 with sort of the rule of thumb that we could go as high as $180 to $200 a barrel if this continues for another month or two,\u201d he said.<\/p>\n
That would shatter historical records. The previous peak for Brent crude \u2014 the global benchmark \u2014 was approximately $147 per barrel in July 2008.<\/p>\n
\u201c$150 would be an all-time high,\u201d Miller said. \u201cIf you\u2019d adjust for broader price changes, you\u2019d still have to go a little bit higher than that though.\u201d<\/p>\n
Recession risk<\/p>\n
Perhaps most concerning, Miller said, is that American consumers are less equipped to handle an energy shock now than they were in previous crises.<\/p>\n
\u201cAll the evidence in terms of credit card delinquency rates, auto loan delinquency rates, et cetera, points to the U.S. consumer not being at a very strong position right now to absorb an energy shock versus back in early 2022 when there was still a lot of stimulus savings left over and additional government support,\u201d he said.<\/p>\n
If oil prices reach $140 or $150 per barrel, Miller said, the conversation changes entirely.<\/p>\n
\u201cIs this the thing that finally starts to cause some type of significant drawdown in consumer spending that could precipitate a recession. We\u2019re not there yet, but if oil gets to the $140 or $150 a barrel, which is gonna drive gasoline prices to $6 plus a gallon \u2014 that\u2019s where we\u2019re at a different conversation,\u201d Miller said.<\/p>\n
He said the math on a prolonged closure is stark.<\/p>\n
\u201cThe reality is, is we need to take global energy consumption down by roughly 10 percent. For perspective, at the bottom of the COVID pandemic, when the entire world was locked down, we only reduced demand by about 20 percent. So, we would have to go halfway to that point in terms of essentially demand being destroyed. That is for sure a global recession,\u201d Miller said.<\/p>\n
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