5-20-2026 11:20am

Rockets & Feathers

Opinion | May 2026 | Iko Knyphausen

The price you paid at the pump today was shaped by a war you had no part in, over a distant waterway, and by decisions made in Washington forty years ago that most people have forgotten.

Americans are paying $4.50, $5.00, or even more for gas in some areas. The Strait of Hormuz, a narrow channel between Iran and Oman, has been closed since late February after US and Israeli forces attacked Iran. About one-fifth of the world’s oil usually passes through this strait, but now it does not.1

What’s frustrating is that the United States produces more oil than any other country. We pump 13.6 million barrels a day from our land and waters,2 but only need 10.8 million barrels for ourselves. Canada, the fourth-largest oil producer, is right next door, and we’re linked by 85,000 miles of pipelines that can’t be cut off by war or foreign powers.3 Yet, we’re still paying crisis-level prices for oil we produce in record amounts.

This situation isn’t inevitable. It’s the result of policy decisions.

The Well, the Rocket, and the Feather

Economists call this pattern ‘rockets and feathers,’ or more formally, asymmetric pricing transmission. When crude oil prices jump, gas prices at the pump rise quickly, almost instantly. But when crude prices drop, gas prices fall slowly, taking weeks or even months. This trend has been seen in many markets and confirmed in economic studies since 1991.4

So what causes this? It’s not a conspiracy. Economics professor Mariano Tappata showed in a 2009 study that this uneven pricing occurs naturally as a result of market dynamics, without oil companies needing to coordinate.5

Here’s how it works: When a global event pushes crude prices higher, the value of oil already produced or still underground goes up right away. But the cost for well owners to extract that oil stays the same, about $8 to $15 per barrel for US shale.6 This cost doesn’t change, no matter what WTI, the US oil benchmark, is trading for in New York.

When WTI goes from $62 to $101 in three months, as it has since the Hormuz closure, the cost to run an existing well doesn’t change. According to the Dallas Fed Energy Survey, large Permian producers need about $31 per barrel to cover costs, while the average for all producers is $41 per barrel. The difference between these costs and the $101 spot price—about $60 to $70 per barrel—is pure profit for whoever owns the oil, starting as soon as prices rise.

This extra profit doesn’t just go to oil companies. It also goes to anyone who owns mineral rights—thousands of Texas families, university endowments, and investment funds that get royalties based on revenue. They didn’t do anything different; the price just changed.

This is the rocket.

The ‘feather’ works differently. When crude prices drop, refiners increase their profit margins rather than lowering wholesale prices immediately. Gas stations, which often made less money when prices were rising fast, use this time to make up for those losses. Everyone involved has a reason to move slowly. As a result, consumers quickly pay the full price increase but only receive a slow, partial benefit when prices fall. This has happened in every major price cycle for the last 50 years.

The Infrastructure Trap

The US produces 13.6 million barrels of oil each day, mostly light sweet crude from Texas and North Dakota. But 70% of our refineries were built long ago to handle a different kind of oil—heavy, sour crude from places like Venezuela and the Middle East. When the shale boom made the US the world’s top oil producer, the refineries weren’t updated.

That’s why we export about 4 million barrels a day of our own light sweet crude—not because we have extra, but because our refineries can’t handle it.7 Meanwhile, we import about 5.6 million barrels a day of heavy sour crude to keep those old refineries running. This cross-shipping costs around $30 billion a year, and the expense goes up when Americans are least able to pay.

We don’t import oil because we have to. The US already produces all the heavy crude needed for products that can’t be made from light sweet oil. The 5.6 million barrels we import are only needed because of how our refineries are set up. This is an infrastructure problem that can be fixed.

The Hidden Cost Nobody Talks About

Anything made from or moved by petroleum will become more expensive. This inflation pushes the Federal Reserve to raise interest rates, thereby slowing economic growth and increasing unemployment. But there’s another effect that’s less obvious: the impact on the national debt.

Each year, about one-sixth of the national debt comes due and must be refinanced at prevailing interest rates.8 That’s around $6 trillion a year. If you add $2 trillion in new deficit spending, $8 trillion in debt gets repriced every year at whatever rate the Fed sets. A 1% increase in rates means $80 billion more in interest payments in the first year. If rates stay high, another $8 trillion gets repriced the next year, costing $160 billion in year two, then $240 billion in year three. This pattern continues for up to six years until all the debt has cycled through.

We’ve already seen this happen: between 2022 and 2023, annual federal interest payments jumped from $352 billion to almost $1 trillion in just four years.9 The Hormuz crisis is starting this process all over again.

That money doesn’t go toward building roads or funding hospitals. It goes to bondholders, and a lot of it leaves the country. Higher interest rates also mean bigger mortgage payments, higher credit card bills, and less business credit—costs that affect every American, not just drivers.

What Could Be Done

The solution isn’t extreme or complicated. It comes down to three steps.

First, we need to build the right kind of refineries. A government-funded program costing $150–200 billion over 10 to 15 years could convert existing refineries or build new ones that can handle our own light sweet crude, ending the need for cross-shipping.10 This won’t happen overnight—permits, reviews, and workforce issues mean it will take at least a decade. Still, the investment makes sense: the US military spends $80–150 billion a year to protect Middle Eastern oil routes,11 so even at the low end, the payback could be just two or three years.

Second, anchor domestic prices to a rolling average. The rocket leg of the problem is not inevitable. The quick price spikes aren’t unavoidable—they happen because we price domestic oil at the current global rate, even if the oil was bought weeks ago at a lower price. If we required domestic crude and refined products to use a six-month average price instead of today’s crisis price, gas would have stayed around $3.70 during the Hormuz crisis, not $4.50 and rising. Producers would still make strong profits: with a $76 average price and costs of $31–41 per barrel, they’d still earn $35–45 per barrel. No one is losing out.

This mechanism would require careful legal design. It is not a price control in the traditional sense: the benchmark is a public mathematical formula derived from existing market data, not a government-set price. But trade implications, particularly WTO compatibility and effects on futures markets and hedging instruments, would need to be addressed in implementing legislation. These are solvable problems; they are not reasons to abandon the approach.

Third, auction off the right to export oil at global prices. If domestic prices are set by a rolling average but the world price is $101, producers will want to export as much as possible. The answer is a Petroleum Export Credit system, similar to carbon credit markets that the industry already uses. Each year, a limited number of export credits—matching the real US oil surplus of about 2.8 million barrels a day—would be auctioned. Anyone wanting to sell US oil at global prices would need these credits, which could be traded freely. The money from these auctions would go into a North American Energy Sovereignty Fund, similar to Norway’s $2 trillion wealth fund, but built from US oil profits that now go to private shareholders.

The Norway Question

Norway produces much less oil than the US. Its North Sea oil fields are aging and shrinking. Still, Norway’s Government Pension Fund Global, funded entirely by treating oil as national property, is now worth about $2 trillion—roughly $400,000 for every Norwegian citizen.

The US has produced much more oil than Norway, from bigger reserves and over a longer time. Yet, we’ve captured almost none of that value for the public. Every time prices spike, the profits go to shareholders of oil companies—a group that’s becoming more concentrated and often includes foreign investors.

The Argument You Will Hear

When people talk about these ideas, someone will call them ‘socialism.’ That word is powerful—it’s shut down real discussions about energy policy for fifty years.

But think about what’s really ‘socialist’ in our current system. The oil industry gets about $20 billion a year in federal tax breaks that have been in place since the 1920s.12 It drills on federal land leased at low rates and exports oil through ports built with public funds. When global oil prices rise, oil companies capture all the additional profit from American oil, while consumers pay more at the pump and the government faces higher interest costs.

These proposals don’t nationalize oil wells or set fixed prices. They just require that domestic prices use a six-month average rather than the crisis price, and they auction off the right to sell above that average to the highest bidder. The money raised would go into a fund for all Americans.

That’s not socialism. It’s a fairer form of capitalism, where a public resource is treated as such, and those who extract it are well paid—but not endlessly.

What Happens Next

The Hormuz crisis will eventually end, and crude prices will drop. Gas prices will slowly come down, too. But just waiting for the next crisis to pass is also a choice—one that lets private shareholders collect big profits while regular Americans deal with higher prices, more expensive loans, and a bigger federal debt.

Sooner or later, there will be another crisis—another war, embargo, or OPEC move. Oil prices will spike again, gas prices will shoot up, the Fed will raise rates, and debt payments will rise. The same old problems will return.

In theory, anyone could protect themselves from rising gas prices by investing in oil company stocks, since those shares go up when oil prices rise. But in reality, this kind of hedging takes a lot of money, a complex investment portfolio, and financial know-how. Most Americans don’t have the resources or knowledge to do this. Hedging is an advanced strategy that the wealthy use—the rest of us just pay more at the pump.

This cycle is nothing new. It’s happened every decade for the past fifty years: the 1973 OPEC embargo, the 1979 Iranian revolution, the 1990 Gulf War, the 2008 commodity spike, the 2022 Ukraine war, and now the 2026 Hormuz closure.

Every time, it’s the same story: people get angry at the pump, Congress holds hearings, and there are calls for windfall taxes that never happen. Then prices drop, the anger fades, and nothing changes.

The three ideas here—flexible refineries, a six-month rolling price benchmark, and an export-credit auction that funds a North American wealth fund—aren’t just technical details. They’re a big-picture plan meant to move the conversation from anger at the pump to a serious discussion about who benefits when global shocks happen.

We can also take short-term steps. Managing the Strategic Petroleum Reserve, providing temporary rebates to drivers who need them most, or offering a brief, targeted tax credit could help ease this crisis while we work to upgrade refineries. This approach balances urgency with practicality.

This is about the choices we make, not just things we have to accept. If we treat American oil as a public asset instead of a private windfall, we can soften the next price spike and share the benefits more fairly. Lawmakers should begin that conversation now.

Notes & Sources

EIA, World Oil Transit Chokepoints, 2024: approximately 21 million barrels per day transited the Strait of Hormuz in 2023, representing roughly 21% of global petroleum liquids consumption.
EIA Short-Term Energy Outlook, March 2026: “U.S. crude oil production grew by 3%, setting a new annual production record of 13.6 million b/d.”
Pipeline101.org, citing PHMSA National Pipeline Mapping System: “There are approximately 85,000 miles of crude oil lines in the U.S.”
Bacon, R.W. (1991). “Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes.” Energy Economics, 13(3), 211–218. The first formal identification of asymmetric price transmission in retail gasoline markets.
Tappata, M. (2009). “Rockets and feathers: Understanding asymmetric pricing.” RAND Journal of Economics, 40(4), 673–687. Formally proves asymmetric pricing is a Nash equilibrium in markets with consumer search costs, requiring no collusion.
Range reflects direct variable costs (electricity, labor, maintenance) only. The Dallas Fed Q1 2026 Energy Survey reports broader operating expenses of $32/bbl for large producers and $46/bbl for smaller operators.
EIA, Annual U.S. Crude Oil Exports Decrease for First Time Since 2021, March 10, 2026: “In 2025, the United States exported 4.0 million b/d of crude oil.”
US Treasury, Fiscal Year 2024 Debt Management Report: weighted average maturity of marketable Treasury debt approximately 6.1 years as of September 2024, implying roughly $6 trillion in annual maturities on a $36 trillion portfolio.
FY2021: US OMB via FRED St. Louis Fed (series FYOINT). FY2024–FY2025: American Action Forum citing Treasury Financial Statement; Taxpayers for Common Sense.
Aggregate cost estimate derived from per-facility data. Individual refinery conversions: $100M–$1B per facility; major Gulf Coast conversions with new hydrocracking units: $2–5B each. The $150–200B figure is an analytical estimate covering 15–20 major facility conversions plus pipeline and storage infrastructure.
SAFE (Securing America Future Energy), Military Cost of Defending Global Oil Supply, 2018: 16% of the annual base defense budget, scaling to $130B+ at current $850B+ budgets. Even at the lower bound of $80B annually, the payback period on a $200B investment is approximately 2.5 years.
Environmental and Energy Study Institute (EESI), Fact Sheet: Fossil Fuel Subsidies, 2023: estimates US federal fossil fuel subsidies at $20 billion per year including intangible drilling cost deductions, percentage depletion allowances, and other provisions dating to the Revenue Act of 1926.