Oil prices and oil supply unambiguously tie China and the United States together, as both nations are heavy importers of oil. T
he United States imports about 65 percent of its oil and oil products, while China imports about 56 percent of its needs, which will undoubtedly increase over the next few years.
The rising trend in oil prices over the past three years has by no means been a classic recession response and the climbing price of crude oil may undo the US’ fragile economic recovery and will certainly slow China’s economic growth.
In response to the rising price of crude, the Chinese government recently raised the price of gasoline to 9,980 yuan ($1,584) per metric ton and the price of diesel to 9,130 per metric ton, the second rise in a year. In the US the price for regular gasoline has climbed to an historic $4 per gallon in at least six states, which translates to 8,700 yuan per metric ton. In many places diesel retails at a price equivalent to more than 9,500 yuan per metric ton. In the market-driven US these are unprecedented prices. There has even been some speculation that gasoline prices might soar to $5 per gallon by the end of the summer.
What is going on?
Geopolitics is what is going on. Geopolitics was the reason for the price of crude oil rising to $150 a barrel in 2008, and it is the reason prices are inexorably climbing toward a repeat of that figure unless something dramatic happens to defuse the situation in the Middle East, where the Iranian crisis is clearly the source of the current rise in oil prices.