DENVER — Denver7 is following the impacts of gas prices closely since the conflict with Iran started. To get a better idea of what it would take for gas prices to drop, we talked to Professor Kishore Kulkarni, a professor of economics at MSU Denver.
"We have a hypothesis of a sticky prices," Professor Kulkarni said. "When the price has to go up, it goes up faster. When it has to come down, it comes down slower."
When the Strait of Hormuz reopens, Professor Kulkarni said prices will start to change.
"That's what economists have been arguing for a long time, that producers do not mind raising the prices quicker, and then come down slow," Professor Kulkarni said. "So my hunch is that if the strait opens in next two weeks, it will take about three or four weeks for the gas prices to go down at the gas station."
He said it could take even longer for things to stabilize like before the war.
"So in about three to four months, definitely it will go back to the old scenario,"Professor Kulkarni said. "Because then traffic will be very good. Crude oil will move around, and then will have some storages too. So I think it will take about four months to really stabilize the situation, back to the normal of before war."
It is important to note this can be tricky to forecast and timing is still be debated by experts. Some say it could it could take longer to stabilize, especially with energy facilities that have been hit in attacks and others are hesitant to put a number on it.
Ultimately, all of this could be impacted by how much product is getting through the strait and the fighting surrounding the area, as well as how long it takes to ramp up production — particularly damaged facilities. Professor Kulkarni also said if the conflict continues and the strait is essentially shut down, prices could keep rising.
While there is a significant impact here in the U.S., for some more context, Kulkarni said other countries rely on the oil and gas passing through the strait much more than the U.S. The BBC is reporting a huge impact in Asia, with some governments telling people to work from home and universities closing.
The U.S. does, however, import specific crude oil for things like jet fuel, which is why we're starting to see the impacts on some airlines.
