The Price of Everything

It's Tuesday, March tenth, and welcome to HigherIQ. Yesterday, oil briefly hit a hundred and twenty dollars a barrel for the first time in years before settling back to around ninety. If you saw the headline and thought "well, it came back down, so we're fine," today's episode is for you. Because the damage from an oil spike doesn't work like a light switch. It works like a wave. The prices that get set during the spike, the shipping contracts, the fuel surcharges, the fertilizer orders, those lock in and ripple forward for weeks and months even after the barrel price drops. Today, we're going to walk through exactly how a spike in crude oil flows through the economy and into your life, who gets hit hardest, what you can actually do about it, and why food prices in September might be determined by what happened last week.

Most people think of oil prices as a gas station problem. Crude goes up, gas goes up, you pay more to fill the tank. That's real, but it's the smallest part of the story. Oil is an input into almost everything in the modern economy, and when the price spikes, it triggers a cascade that arrives in stages.

The first stage is gasoline, and it's the most visible. There's roughly a two-to-four-week lag between a change in crude oil prices and what you see at the pump. For every ten-dollar increase per barrel, gas prices tend to rise about twenty to twenty-five cents per gallon. Oil was sitting around seventy-three dollars before the Iran strikes began. Even at yesterday's settled price of ninety, that's a move of roughly seventeen dollars, which translates to somewhere around forty to fifty cents more per gallon over the next few weeks. If you're driving a car with a fifteen-gallon tank and filling up once a week, that's an extra six to eight dollars per fill-up, or about twenty-five to thirty dollars a month. Not catastrophic for most households, but not nothing either.

The second stage is diesel, and this is where the real economy starts to feel it. Diesel moves faster than gasoline because it's more directly tied to spot prices. And diesel doesn't just fuel trucks. It fuels the trucks that move everything. Every product in a grocery store, every package from an online order, every piece of construction material arrived by diesel-powered vehicle at some point. When diesel prices jump, shippers add fuel surcharges to their rates. Those surcharges get passed to retailers, who pass them to you. The connection between crude oil and the price of a bag of rice is invisible but direct.

The third stage is jet fuel, and it hits fast. Fuel is typically the single largest operating cost for airlines. When oil spikes, airlines either raise fares or cut routes, sometimes both. Several global carriers have already adjusted their outlooks in the past week. Grupo Aeromexico halted operations partly because of jet fuel costs combined with regional instability. If you're planning to fly in the next few months, the fares you see today probably haven't fully absorbed what happened last week. They will.

The fourth stage is the one most people miss entirely, and it might be the most consequential: fertilizer. Natural gas is a critical input in the production of nitrogen fertilizer, which is the foundation of modern agriculture. When energy prices spike, fertilizer prices spike. The Iran conflict has already pushed fertilizer costs higher, and the timing is terrible because the spring planting season in the Northern Hemisphere is right now. Farmers are making purchasing decisions about inputs for crops that won't be harvested until late summer and fall. If they're paying more for fertilizer today, that cost gets baked into the price of corn, wheat, and soybeans months from now. Food economists call this the "planting season lock-in." The decisions being made in March about what to plant and how much to spend on inputs determine grocery prices in October. This means that even if oil drops back to seventy-five dollars tomorrow, the food price increase is already locked in for the second half of the year. The planting decisions have been made. The contracts have been signed. The cascade doesn't stop just because the headline number improved.

And there's a fifth layer: plastics and packaging. Petroleum is the base material for most plastic products and packaging. When crude is expensive, so is the container your yogurt comes in, the wrap around your produce, and the packaging on basically every consumer good. These costs are small per item but they compound across every product in every store.

The question people always ask during an oil spike is: who gets hit hardest? The answer connects directly to something we talked about earlier this week. When we covered the K-shaped economy and the consumer debt crisis, the core insight was that the top and bottom of the income spectrum are living in different economies. Oil at ninety dollars is the same dynamic, amplified. Wealthier households spend a smaller share of their income on gas, food, and transportation. An extra thirty dollars a month on fuel is an annoyance. For lower-income households, where gas and groceries already consume a third of take-home pay, that same thirty dollars might be the difference between making rent and missing it. And remember, a quarter of American adults are already carrying grocery debt on their credit cards. An oil-driven price increase on top of that isn't just uncomfortable. It pushes people further into the debt cycle we described on Thursday, where you're still paying off last month's milk when this month's more expensive milk shows up.

Meanwhile, not everyone loses when oil spikes. The U.S. is now a net energy exporter, which means some American workers, particularly in Texas, the Permian Basin, and the Gulf states, benefit directly from higher oil prices. Chevron was one of only four Dow stocks that rose yesterday while the broader market dropped over one percent. The pain and the profit from the same barrel of oil go to different people in different zip codes.

There's a macroeconomic wrinkle that matters too. The Federal Reserve was expected to continue cutting interest rates this year, which would lower borrowing costs for mortgages, car loans, and credit cards. But sustained high oil prices push inflation up, and the Fed can't easily cut rates when inflation is rising. So the same oil spike that makes gas and groceries more expensive also makes it harder to get relief on your mortgage rate or your credit card APR. It's a squeeze from both sides: costs go up and the policy tool that would normally provide relief gets taken off the table.

So what can you actually do? Not financial advice, but a few practical frameworks. If you're planning to fly in the next few months, consider booking sooner rather than later. Airfares haven't fully priced in the fuel cost increase yet, but they will. Expect grocery prices to climb in two waves: the first over the next few weeks as diesel and shipping costs flow through, and the second in late summer and fall as fertilizer costs hit the harvest. Store brands, which as we discussed this week are often identical in quality to name brands, become even more valuable when prices rise across the board.

This is also a good moment to audit your recurring costs. When everything gets slightly more expensive at once, the subscriptions and autopay charges you've been ignoring start to add up faster. The Planet Fitness model we talked about last week, where the business depends on you not noticing a small charge, works a lot better when your budget has slack in it. When prices rise everywhere, that slack disappears, and suddenly ten dollars a month for a gym you don't use feels different.

And if you drive a lot for work, track your mileage. Gas expenses are tax-deductible for self-employed workers, and the IRS mileage rate already accounts for fuel costs. A lot of people who qualify for this deduction don't claim it, and in a high-gas-price environment, the savings are meaningful.

Oil spiked to a hundred and twenty, settled around ninety, and most people moved on. But the shipping contracts were already signed at the higher price. The fertilizer was already ordered. The fuel surcharges were already applied. An oil spike isn't a single event. It's a cascade that takes months to fully arrive, and by the time you notice it in the price of eggs or the cost of a flight, the cause is already old news. If someone at dinner says "at least oil came back down," now you know the answer: it doesn't matter. The planting season already priced it in. The cascade is already moving. The price of the thing that runs everything went up, and now everything else follows.

Stay informed, stay curious, and we'll see you tomorrow.