Your Life, On Oil

Whether you've been tuning into the news or not, by now you've inevitably heard about the US-Iran conflict, and what it means to the global oil supply. Perhaps you hadn't heard of the Strait of Hormuz until last week. Maybe this whole time, you've optimistically thought:

So many countries, including the US, have invested in alternative energy sources throughout the decades- so we should be more insulated to hits in the oil supply.

Or: I'll budget for more expensive gas, and our family can drive and fly less, so hopefully we won't feel the spike in oil prices in the long run.

And yet, oil prices have crept into your life. Why? Because our global economy is dependent on oil. Over the past 50 years, there's been a big push to introduce alternative sources of energy to oil and coal, and it has worked- we've begun using other sources of energy, especially in the last 30 years. But while we've diversified our global energy consumption, we've increased our oil consumption.

We're not just consuming oil when we drive or fly. Every single time we consume something, we're at the end of a long supply chain- one that was most likely fueled by oil.

Think about the energy required to produce, harvest, manufacture, and transport the food, cleaning supplies, clothes, supplements, home furnishings, toys, sporting goods, and school supplies that we use every day. Think about the plastics that package all of this (made by petrochemicals- a byproduct of oil). Think about the energy required to light our spaces, wash our dishes, take our showers. Your grocery store has been thinking about all of this, which is why prices of goods reflect this supply chain price creep.

Inflation is a reaction to this supply chain price increase. When we see the cost of goods, and the cost of our living go up, we call it inflation- when our dollar (let's be real: our $100) no longer buys the same amount for us that it used to. Next month, we'll dive into the details of inflation in our free Wealth Wednesday series.

Inflation is how the ripple effect of oil shows up in our own budgeting, saving, and investing plans:

When you hear "expect inflation to rise since oil prices are rising", this is why. And it’s also why—even if you’ve done everything you can to reduce your direct reliance on oil—you’re still going to feel its impact. Not because you’ve done anything wrong, but because you’re part of a system where these costs are intricately connected.

The goal isn’t to avoid inflation entirely. Rather, we should be prepared for it:

Things within your control

• How you spend

• What you prioritize

• How you structure your savings and investments

Things beyond your control

• Global conflicts

• Supply shocks

• Policy decisions

When it comes to politics and the global economy, it's easy to feel powerless, but being informed about how macro events can influence micro outcomes is a big way for us to regain some power, and prepare accordingly.