Why it’s so hard for world leaders to bring down oil and gasoline prices

The near-total halt of traffic through the Strait of Hormuz, the key waterway through which about a fifth of the world’s oil and liquefied natural gas typically passes, has created a catastrophic disruption in oil markets.

Crude oil prices have now topped $110 per barrel, and could climb more. Those higher prices have rippled through to U.S. gasoline prices.

The global energy market and U.S. policymakers have several levers they can pull — and are pulling — to try to bring prices down.

But those tools can only go so far.

“The levers that we have in the short term are very limited,” says Avery Ash, the CEO of the energy security and national security nonprofit SAFE. “The worst time to try to be solving a crisis is when you’re in a crisis.”

Here’s why.

Spare capacity is in the wrong places

Normally, in the event of a severe shock to oil supplies, markets would look to countries that could boost production very quickly.

Drilling brand-new wells would take too long to help with an immediate pinch. But the countries in OPEC, the oil cartel led by Saudi Arabia, voluntarily choose to make less crude than they could, giving them lots of what’s called “spare capacity.”

“It’s production that’s basically ready to go that they’re just not using,” says Ellen Wald, author of Saudi, Inc., “because OPEC has agreed that they’re not going to produce that much.”

The problem is, right now the world’s spare capacity is concentrated in Saudi Arabia and the United Arab Emirates, on the Persian Gulf … and the wrong side of the Strait of Hormuz.

“Spare capacity is only as good as the ability to get the oil out of where it’s being produced,” Wald says. In this case, no good at all.

Pipelines can only transport so much crude 

What about finding alternate routes for the crude that can’t get shipped through the strait? Saudi Arabia does have a pipeline that runs from the east to the west, taking oil to the Red Sea, where it can be shipped through the Suez Canal or piped to the Mediterranean. The UAE also has a pipeline that can transport some crude past the Strait of Hormuz.

But not enough. “Twenty million barrels a day is backed up” by the Strait of Hormuz, says Dan Pickering, the chief investment officer at Pickering Energy Partners. “Five million is finding its way around the edges through pipelines.”

That leaves a 15-million-barrel hole.

Stockpiles can only be tapped so fast 

The world’s major oil-consuming countries have massive stockpiles of crude oil that they set aside precisely for emergencies like this. And they are tapping into them: Last week, the 32 countries in the International Energy Agency agreed to their largest-ever release from reserves, more than 400 million barrels as of the latest announcement.

The problem? Those reserves can only be tapped so quickly. Sales need to be arranged, oil needs to move through pipes and on ships. Bob McNally, the founder of the research and consulting firm Rapidan Energy, estimates a likely pace of around 2 million barrels per day.

The stockpile releases are “a good thing,” McNally says. “But they will not solve the brutal math problem.”

Waiving the Jones Act has a tiny effect

This week, the government announced a temporary waiver of the Jones Act, the law requiring that ships traveling between U.S. ports need to be American-made, American-crewed and sailing under the American flag.

That makes it easier to move gasoline from Gulf Coast refineries to ports on the East Coast or West Coast. It could help gasoline prices … but not by much.

“We’re talking, you know, slowing the ascent of pump prices by pennies or tenths of a penny,” says McNally. “It’s a good step, but it’s not a game changer.”

Sanctions waivers are a partial measure

The Trump administration has already lifted some U.S. sanctions on Russian crude to make it easier for those barrels to make it to market. Now the U.S. has floated the extraordinary idea of removing sanctions on Iranian oil, in the middle of a war against Iran — essentially boosting revenues to the other side — in another bid to help ease the supply crunch.

The trade intelligence group Kpler called the Russian sanctions waiver a “short-term logistical buffer” for India, the main importer affected, but not enough to fully offset the blow from the Hormuz closure. The cargo tracking firm Vortexa has estimated about a million barrels a day of the shortfall in crude could be met through sanctioned oil being easier to sell.

Export bans would hamper U.S. refineries 

One idea that has been floated as a way to ease prices in the United States is to block its oil exports. The U.S. produces more oil than it consumes; if exports were reduced, domestic supply would go up, and prices could go down.

But, says Ellen Wald, “That would be a terrible idea.” Most of the oil produced in the U.S. is light, sweet crude, some of which it exports. Meanwhile, U.S. refineries have for decades been optimized to work with heavy, sour crude, which it imports.

“And so we can’t process all of the very light oil that we’re producing right now,” Wald says. “Our refineries just aren’t set up like that.” Walling off from global markets would leave the U.S. with a challenging mismatch.

Waiving gasoline taxes could help — and could backfire 

The state of Georgia is considering a holiday from gas taxes, which if signed into law would save gasoline consumers in the state 33 cents per gallon. That’s not enough to make up for the spike in prices seen this month.

And Patrick de Haan, petroleum analyst at the app GasBuddy, says there’s a drawback. “In theory, if every state were to waive their gasoline taxes, it would likely drive demand up even further,” he says. More demand for fuel would push prices back up.

Allowing more emissions could save some cents

Another possibility would be for the U.S. Environmental Protection Agency to temporarily waive requirements for “summer gasoline,” a more expensive blend that is designed to reduce pollution during warmer months.

De Haan estimates that could save anywhere from 10 to 30 cents a gallon, “depending on where a motorist is.”

“That’s another small lever that may make a difference,” he says — but “at the cost of emissions.”

There’s a reason why the summer gasoline requirement exists, he says; the adjusted blend reduces health-damaging pollution when hot weather makes evaporative emissions from gasoline worse, and when Americans are driving more.

In sum … the hole is just too big 

The problem is that no matter how many of these strategic levers governments pull, they just can’t replace the amount of oil that’s stuck waiting to move through the strait.

“Fifteen million barrels a day isn’t easy to offset anywhere,” says Dan Pickering, the chief investment officer with Pickering Energy Partners. “That’s the total production in the United States, and we’re the biggest producer in the world. There is no easy fix.”

And there’s no substitute for addressing the actual problem: The blockage of supply from the Persian Gulf.

There’s one big lever that President Trump could pull to “immediately bring relief to Americans, truckers, farmers, travelers,” says Patrick de Haan. “Restore the flow of oil and other products through the Strait of Hormuz. Everything else is a piecemeal Band-Aid on a gaping wound.”