The Best Prices Are Here. Companies Add Extra Fees Amid Central Crisis

Americans have so far felt most of the impact of the US-Israeli war against Iran in rising prices at the gas pump, but that pain is about to spread as companies add fuel penalties to their prices.

Iran’s successful closure of the Strait of Hormuz, a key shipping route for a fifth of the world’s oil, has pushed oil prices past the $100 key per barrel level. The jump in oil prices raised the average US price for a gallon of regular gas by more than 50 cents earlier this week to $3.45, according to Gas Buddy, which tracks pump prices across the country. Crude oil usually costs about 50% to 60% of the cost of a gallon of gasoline.

Companies in every industry are following through on their investments that are likely to trickle down to consumers, experts say. Package delivery company UPS, shipping giant Maersk, chemical firm Ecolab and airlines Cathay Pacific and Air India have all announced higher fuel costs since the US and Israel began attacking Iran.

“We expect more announcements like this until oil prices cool significantly from a four-year high,” Raymond James Investment Strategist Pavel Molchanov said in an email.

How much are the additional costs and when will consumers see them?

The additional costs and where Americans are likely to see them vary by company.

Others such as Air India are bringing them in quickly, with passengers going to West Asia paying an extra $10 a fare, Africa adding $30 to $90, and those going to Southeast Asia, including Singapore, will see a $20 increase. Domestic flights will also be charged.

On March 18, the next phase of Air India will begin. Surcharges on European flights will increase by $25 to $125, while North American and Australian routes will increase by $50 to $200.

Some companies implement price increases across the board immediately. Cathay Pacific will more than double its fuel surcharge on all charter flights on March 18. Ecolab is applying an additional 10-14% fuel surcharge on all its products and services, effective April 1, across all businesses and countries.

Some companies, such as UPS and Maersk, review their payments weekly.

“To emphasize, it’s not just transport-related companies that are involved,” said Molchanov. “Oil is the primary source of chemicals, and natural gas, also denatured, is used in many industrial processes.”

How long will fuel prices last?

Whether companies continue to increase their fuel prices or maintain them for a long time depends on how long the closure of the Strait of Hormuz and strikes in the Middle East will last, say analysts. The longer each one takes, the greater the risk of higher fuel costs in the long run.

In the near future, with Iran vowing to close the Strait of Hormuz, “we should expect to see some additional energy bills unveiled this week and next, as companies respond to their rising fuel costs,” Molchanov said.

However, trading in oil futures contracts – seen as a gauge of where investors expect oil prices to be in certain months – shows that markets expect the country’s tensions to ease in July, he said. Oil appears to be cooling from $95 in the April contract close, to $86 in July, $77 in October, and on from there.

“This means that the impact of inflation should be short,” Molchanov said. “In other words, it’s unlikely to be anywhere near as long as inflation for the 2022-23 COVID-19 period.”

Most economists agree. Deutsche Bank economist Jim Reid also noted that inflation expectations remain subdued. “Despite all the short-term noise in the markets, long-term expectations still reflect… the market’s belief that this conflict may be temporary.”

The US as a net producer, rather than consumer, of energy products should also help consumers, said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

“Higher oil prices present a mixed picture for US economic growth, with the drag on consumption driven at least by the benefits of increased jobs and profits in the energy sector,” he said in the paper.

Will companies drop prices again?

When oil prices fall again, companies will likely end the surcharge, Molchanov said. However, the way oil futures contracts are growing, it may be for a while.

“Once oil prices return to pre-war levels of around $60-70 per barrel, the cost of oil is likely to be eliminated,” he said.

Medora Lee is a money, markets, and personal finance reporter for USA TODAY. You can find him at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.

This article first appeared in USA TODAY: The high prices are here. Companies are adding charges amid Mideast unrest

Reported by Medora Lee, USA TODAY / USA TODAY

USA TODAY Network via Reuters Connect