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Why is the price of gas going up if the U.S. is energy independent?
A few episodes ago I talked to you about the impact of the closure of the Strait of Hormuz, and that extended closure had a good chance of leading to $4 gas. Well, we’ve arrived at $4 gas. But you may be wondering why we are there – especially if you have read in recent years that the U.S. is energy independent. If that’s the case, then why are we being affected by higher oil prices? Brian Wesbury with First Trust offered a great explanation that I’ll summarize here.
First of all, the oil market is an international one. Economics 101 tells you that if there is a reduction in supply of anything and if demand remains constant, it is likely prices will go up. Simply put, there is less oil making its way to the right places – so the cost of oil internationally has gone up. And although we are in some ways energy independent, in practice we can’t do without importing some of our oil. It’s true, we are a net exporter of petroleum products overall. But that’s’ because we have an excellent refining network. We import oil from Canada and from the Middle East and then refine it into gasoline, jet fuel, or diesel fuel. We have more of these petroleum products than we need, so we often export the excess. We also export some of the oil we produce because it is light and sweet, and most of our refineries are actually suited for the heavier crude that comes out of Canada. So, if we have more gasoline, jet fuel, and diesel than we need, why are prices at the pumps going up? It’s because the price of producing it has gone up. That’s because its primary ingredient, crude oil, has gone up. Make sense? We’ve got lots and lots of oil in the U.S., but we aren’t able to translate all of that oil into gasoline domestically to help keep a lid on prices. That being the case, we are in a completely different place than the rest of the world and where we were 20 years ago. The U.S. imports a fraction of the oil that it used did prior to 2005 (the last time gas prices reached $4 per gallon). The fracking revolution has fundamentally changed the U. S’s dependence on foreign oil – but hasn’t made us immune to supply shocks like the one we are seeing in the Strait of Hormuz.
It’s not just oil that is experiencing a supply shock. So is fertilizer. As a result, the price for the base component of fertilizer is up 24% from the same time last year. According to Forbes about 34% of the world’s supply of urea is shipped through the Strait of Hormuz. If this continues, higher fertilizer costs could lead to certain food costs continuing to go up as well. So now that we have arrived at $4 gas, and knowing that other supply shocks can have an effect on the things that you buy – what can you do?
Focus on what you know rather than what you don’t know. Headlines change by the day. Geopolitical events are impossible to predict. Make your decisions based on today’s facts. These are not a perfect guide, but today’s facts are more concrete than tomorrow’s speculations. Don’t make decisions based simply on wishful thinking. Have a basis for your decisions that are rooted in truth rather than in what you want the truth to be.
Factor buffers into your cost estimates – Today’s prices could change dramatically. It would be wonderful if they went down, but are you prepared if they go up? If you are building a house, have a buffer for overrun. If you are investing in new machinery, be prepared that it could cost you more than you expect. Make sure that you have pricing power to raise the prices to offset the rising costs of your input. If you don’t have that pricing power, you’ll have to look for other ways to cut other expenses. As a side note – I think this is one of the reasons the job market is tightening up. Corporations are seeing other costs go up and that leads them to try and do more with less people. It’s not only AI that is driving this – it’s the rising cost of doing business.
Keep your eyes open for opportunity. There is always opportunity. Even when you are playing defense, there are opportunities to watch for others to fumble. Are you in position to take the ball and run with it if this happens? Do you have capital in reserve for the opportunities that are bound to present themselves in a dynamic market?
At Foundation Bank and MBC, we can help you put your capital to work. We can step in and provide the gap between today’s resources and opportunities that are presented to you. And we’ll give you more than money – we’ll give you financial perspective. The next time you need to borrow money, we hope that we will be your first phone call. Start your financial conversation by visiting foundationbank.org. Until our next episode, God bless you.
-President Chad P. Wilson, CFP
Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on May 05, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.