Gary Cohn: Strait of Hormuz reopening to trigger 'psychological change' in oil prices

Gary Cohn, former top economic adviser to President Trump and current Vice Chairman at IBM, discussed the potential economic benefits of reopening the Strait of Hormuz in an interview on CBS News' "Face the Nation." Cohn suggested that the opening of the straits would not immediately cause prices to "fall like a rock," but would initiate a significant psychological change in the market.

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It's not going to fall like a rock overnight. We're going to have to see exactly what happens in the straits. It was not clear how quickly they'll open. But as they do open, we will start getting a change in psychology.

"When you're in an upward price environment, people tend to fill their tanks up early because they think the price is going to be higher next week," Cohn explained. "And they tend to not let their tanks go down when you're in an environment when you think the price is going to get cheaper, people tend to drive their cars till they're almost empty, because they think the longer I wait, the cheaper gas will be."

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When you're in an upward price environment, people tend to fill their tanks up early because they think the price is going to be higher next week, and they tend to not let their tanks go down when you're in an environment when you think the price is going to get cheaper, people tend to drive their cars till they're almost empty, because they think the longer I wait, the cheaper gas will be.

He noted that gas prices had already fallen 10% from recent highs and anticipated further decreases as oil begins to flow more freely. Cohn emphasized that the impact extends beyond gasoline, affecting the price of groceries and energy's pervasive influence on manufacturing, delivery, and overall consumer costs. He acknowledged that while energy costs would decrease, the pass-through to consumer prices for goods like food might take longer, requiring a "first mover" to show leadership in price reductions.

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So we're going to be in a psychological change when the straits open, and as oil starts flowing out, we will start to see some impact. We've actually already seen some impact, you know we're, gas prices are, I won't say well, but they're 10% off their recent highs, and if we open the straits, I think we'll continue to see these gas prices come down.