Pain at the pump: gas prices could hit $5 a gallon this summer--a potential road block to economic recovery and President Obama's bid for re-election.

• Author: Krauss, Clifford
• Position: ECONOMY

Liz Carrazco, 20, of Riverside, California, drives about 50 miles a day, mostly to and from her job at a cellphone store. When she up the tank of her Honda Civic these days, it costs her about $50.

"It hurts," she says of the prices. "Everyone needs gas to get around."

Gas prices are already at record highs for this time of year and approaching $5 a gallon in California. And many economists expect them to go even higher over the summer, as they always do when vacations increase demand for gas.

How high gas prices climb--and whether they leap above $5 a gallon nationwide--could have a big impact on the U.S. economy and this year's presidential election.

"As a shorthand way to assess how the economy's doing, everybody notices the price of gas," says Ethan Harris, an economist at Bank of America Merrill Lynch. "It can have a big symbolic impact, and in a presidential election year, when the price is rising, that can create a big headwind."

Mideast Tensions

What's behind the rising prices? The most immediate cause is the ongoing upheaval in the Middle East, particularly tensions with Iran over its suspected nuclear weapons program. Iran is the world's third-largest oil exporter; tough new international sanctions aimed at preventing Iran from selling its oil are squeezing global supply and causing prices to rise--as is Iran's threat to close the Strait of Hormuz into the Persian Gulf, through which 20 percent of the world's oil is shipped.

Then there's the longer-term issue of rising demand from developing countries. In China and India alone, the demand for oil is expected to double in the next 20 years as their economies continue to grow and their exploding middle classes are able to buy millions more cars.

As recently as 1999, gas cost about $1 a gallon in the U.S. For most of the 20th century, as oil transformed the modern world, it was abundant and easy to find. Cheap oil fueled America's love affair with the car and the growth of suburbia. But as oil became harder to find domestically, the U.S. became dangerously dependent on imported oil, much of it from unreliable, even hostile, sources--many in the Middle East.

Now Americans are feeling the pinch--and not just at the pump. That's because energy costs are built into the price of practically everything we buy: When a retailer pays more to get jeans shipped to its stores, it's likely to try to pass on the additional cost to consumers. And because plastic is made out of petroleum products...