Use select charts from the Guide to the Markets to engage in portfolio discussions.
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The economic impact of oil
The United States is the top consumer of oil in the world, which leaves the U.S. economy vulnerable to changes in oil prices. Although prices remain below their 2008 peaks, recent tensions in the Middle East have the potential to push oil prices higher. Because the U.S. imports the majority of the oil that it consumes, rising oil prices create a drag on economic growth.
Volatile supply drives prices
- As tensions continue to rise in the Middle East, the possibility that oil and gasoline prices will move higher has increased. Given that the Middle East produces a significant amount of the world's oil, any threat to production in that region typically causes oil prices to go up.
- The underlying issue is that Iran sits right next to the Strait of Hormuz, an oil chokepoint that sees approximately 17% of the world's liquid fuel pass through it.
- Although it is impossible to predict the future of U.S./Iranian relations, given that a conflict with Iran could seriously disrupt the movement of oil around the world, this issue has been front and center for both investors and consumers in recent months.