How two Texas industries feel the impacts of Middle East war

In an open field, farmer Casey Smith surveys his newly-planted rice crop in Brazoria County, south of Houston.

“This is the early stage. We're in the first two weeks of this crop. It'll get about waist-tall by the time we harvest,” he said.

The rice plants are about three inches high. They look like blades of grass, peeking through the dirt and are placed in tidy rows.

“My son actually planted this field. My 12-year-old,” he said.

Once this field dries out, Smith will need to add more fertilizer to his crop. But when he got a quote for the Urea fertilizer he uses, the price per ton had jumped about 25% since the war in the Middle East started less than three weeks ago.

“That's definitely gone up and so I think that's about $30, $40 an acre when you start applying it to the field,” he said. “It didn't take very long to add up some expenses.”

Considering higher diesel prices, which have gone up by $1.50 or so, he's looking at tens of thousands of dollars in additional expenses.

“Diesel … it's a big expense. My farm here, we're typically burning, you know, 20 to 25,000 gallons of fuel a year,” he said.

Smith loves rice farming, but it’s a brutal business. And now, because of the war, which has constrained the flow of global oil, natural gas and other petroleum products like fertilizer, Smith said he worries what this means for his operating costs.

“This crop will not make enough yield to offset any of those expenses. It's just going to take off our bottom line, which there is no bottom line. We're paper thin,” he said.

Five hundred miles northwest of Brazoria County is the engine of U.S. oil production: the Permian Basin in West Texas. You might think as prices climb, so will production.

“There's no ‘drill, baby, drill’ happening because of this,” said Nikki Morris, executive director of Texas Christian University’s Ralph Lowe Energy Institute. “Most of the CapEx budgets, drill schedules, all of that in particularly Texas, New Mexico, are already set.”

For now, this crisis is temporary, so short-term high oil prices aren’t going to suddenly spur a bunch more drilling. The war isn’t changing the fundamentals of the industry, which many analysts said was oversupplied before the war.

But even without a big increase in production, higher prices still benefit oil companies and oil producing economies, according to Karr Ingham, president of the Texas Alliance of Energy Producers.

“Anytime it [the commodity price] goes up, just means more regional crude oil and natural gas income that then gets spent somehow in the economy,” Ingham said.

Higher prices lead to increased retail and auto sales and generate more tax revenue, he said.

So while gasoline prices may loom large in many U.S. cities, worrying consumers, the vibe is different in the Permian Basin.

“There's a sign downtown in Midland, Texas, that has the price of West Texas Intermediate crude oil posted, and it's front and center. They know what the price of crude oil is out there. They know what it means when crude oil goes higher in the Permian Basin,” he said.

Even rice farmer Casey Smith, who is paying more for diesel and fertilizer, has a nuanced view of high energy prices.

“I also work in refineries about 60 days a year,” he said. “That's how I get health care for my family, and that's how we keep the lights on at the house.”

Smith’s job in oil and gas gives him the financial freedom to do what he loves: rice farming.