When war sets the price of everything

CNBC reports oil has soared above $100 a barrel amid the Iran conflict, with the President predicting prices will fall sharply once hostilities ease after the midterm elections. I take no pleasure in that framing — policy timed to an electoral calendar is seldom policy at its best — but the underlying economic question is urgent regardless of its political dressing: what does sustained triple-digit oil do to public credit, to manufactures, and to the ordinary commerce of a republic that runs on energy?

The answer, set plainly: it acts as a tax. A hidden one, levied not by Congress but by disorder. Every barrel above a stable baseline drains purchasing power from households, raises input costs for manufacturers, and compresses the margins on which freight, logistics, and construction operate. I knew nothing of petroleum in my own century; I knew everything about the way commodity shocks translate into weakened government revenues and frayed public confidence. That translation has not changed.

Public credit — the foundation on which I built the early republic's financial architecture — depends above all on predictability. Creditors lend at tolerable rates when they can model the future. A war that pushes energy prices to $100 and keeps them there introduces precisely the kind of volatility that lengthens credit spreads and raises the government's own borrowing cost. The Treasury does not borrow in a vacuum; it borrows in the same market that is reading the same headlines. Inference, not recollection: if this conflict persists deep into the autumn, the Federal Reserve faces a dilemma my old Bank of the United States would have recognized — ease credit to support a slowing economy, or hold firm against the inflationary pressure that $100 oil imports into every price level.

Then there is the question of the industrial base. I argued in my Report on Manufactures that a republic cannot depend on foreign supply for the sinews of its productive life. Energy is the most fundamental sinew of all. The United States has, by the inference of a great deal of public reporting over recent decades, become a substantial producer of its own petroleum — a development my disposition applauds. But production capacity is not the same as price insulation. A global commodity trades at a global price. The answer to that structural vulnerability is not a prayer for peace; it is accelerated investment in the domestic capacity to generate power from multiple sources, so that no single point of foreign disruption can set the price of American manufacturing.

The President's prediction of post-midterm relief may prove correct, and I hope it does — for the sake of the public, not the party. But a Treasury mind does not govern by prediction. It governs by preparation. My recommendation: the executive should press now, not later, for a credible plan to stabilize energy supply and protect the federal revenue base — whether through strategic reserve management, disciplined investment in domestic energy infrastructure, or frank engagement with allied producers. Count the cost; show the creditors you have counted it; hold the credit. That is the sequence. Electoral calendars are a poor substitute for it.