U.S. President Donald Trump at the RNC Midterm Convention in Dallas, Texas on Sept. 10. As prices increases, Republicans will struggle to retain control of the House of Representatives and the Senate.KENT NISHIMURA/AFP/Getty Images
Donald Trump, at 80, is old enough to remember the second oil shock of the 1970s.
The first shock came in 1973 and 1974, during the OPEC oil embargo against countries – including the United States and Canada – that supported Israel during the Yom Kippur War. Oil prices rose 300 per cent. The second came in 1979, during the Iranian Revolution. Oil doubled, triggering recessions around the world and gasoline rationing in some U.S. states.
Jimmy Carter was president at the time. The price surge propelled inflation to double-digit levels and drove up bond yields. Consumers retaliated by handing Ronald Reagan a landslide victory in 1980. To be sure, the Iran hostage crisis helped sink Mr. Carter’s fortunes, but there is little doubt that soaring inflation was the final blow for his presidency.
Today, oil and bond yields are rising again, though at rates well short of those seen during the twin oil shocks half a century ago; U.S. inflation is nowhere near out of control. But at 3.4 per cent at last count, it is well above the Federal Reserve’s target rate of 2 per cent and could head north again.
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Rising cost-of-living has emerged as a big issue, perhaps the biggest issue, ahead of the U.S. midterm elections in November, when the Republicans will struggle to retain control of the House of Representatives and the Senate. The price increases don’t have to reach 1970s proportions to hurt – and anger – consumers. That’s already happening.
As Mr. Carter found out the hard way, rising prices, especially for fuel, enrage consumers. Everyone drives in the U.S. – only a few cities have widespread public transportation networks – and households have an average of two cars. To them, the most visible sign of rising prices comes at the pump. This week, the national average for regular gas reached US$4.30 a gallon, according to the AAA Fuel Prices monitor, up US$1.10 over a year.
Diesel was the bigger shock. On Friday, the average price reached a record US$6 a gallon, up from US$3.70 a year ago – a two-thirds increase. In California, diesel hit almost US$8.
Diesel, not gas, is the lifeblood of the economy. Almost every product, from furniture to fruit, is delivered by diesel truck or diesel locomotive train. The unofficial motto of the trucking industry in the U.S. and Canada is “If you got it, a truck brought it.” School buses and farm and construction equipment run on the fuel, as do ocean shipping and river barges. Inflation propelled by rising energy costs are a clear and present danger.
Mr. Trump can take a lot, though not all, of the blame for high gas and diesel prices, which today are more expensive than they were when his predecessor, Joe Biden, left the White House in January, 2025. For him and consumers across the planet, oil started to go in the wrong direction on Feb. 28, when the U.S. and Israel attacked Iran for reasons that remain unclear. Iran promptly retaliated by shutting the Strait of Hormuz, through which 20 per cent of the world’s oil and liquefied natural gas flowed. In the spring, Brent crude, the international benchmark, hit US$126 a barrel, then fell on reports of various peace agreements, ceasefires and Mr. Trump’s declarations of “victory,” or words to the effect, in dozens of social media posts.
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The war rudely returned to haunt the energy markets in early September, with both the U.S. and Iran blaming each other for renewed attacks. Oil sailed past US$100 this week and traded at about US$104 on Friday, taking the one-year gain to 57 per cent. Ukraine’s attacks on Russian refineries and the Houthis’s seizure of the Yemeni port of Mocha – putting it into position to threaten the Bab al-Mandeb Strait, the vital shipping chokepoint that connects the Red Sea to the Indian Ocean – added to the upward pressure on prices. The Houthis are backed by Iran.
Mr. Trump is scrambling to deliver some good news to voters ahead of the midterms but can’t find any that they will believe. The European Central Bank, citing high energy prices, just raised interest rates by 0.25 of a percentage point and the U.S. Federal Reserve is expected to do the same next week. The President’s tariff war against Canada and dozens of other countries is no gift to U.S. consumers either. Gas and diesel prices keep going up. U.S. Treasury bonds are selling off, raising yields (prices and yields move in opposite directions). Mortgage rates are likely to rise.
Trump haters – hardly an exclusive club any more – know that this dire economic recipe raises the chances that the Republicans face a walloping in the midterms. The polls say they will lose the House, though the Senate could go either way. No wonder Mr. Trump is promising a dubious US$5,000 “dividend” payable to every adult if Republicans retain control of Congress. He brought the mess upon himself. Mr. Trumps seems to have forgotten that Iran has not been kind to U.S. presidents.