How the U.S.-Iran war could impact gas prices at the pump
Experts say that oil prices rose rapidly after the US and Israel attacked Iran over the weekend, threatening an almost sudden increase in gasoline prices.
Already, US crude oil prices have gained 6% as of Monday morning. A prolonged US-Israeli conflict with Iran could disrupt crude oil supplies and push prices even higher. Iran is OPEC’s fourth largest oil producer.
The average price of unleaded gasoline in the U.S. is now $2,997 per gallon, up 2% from a week ago. AAA.
If the price of oil increases by $10 per barrel, the price of gasoline could increase by about 25 cents per gallon, according to Ken Medlock, senior director of the Center for Energy Research at Rice University’s Baker Institute.
“If the price of oil goes up, the price of gas goes up just as quickly,” Medlock said. In a week, “everyone will pay a little more than they do now.”
According to the Energy Information Administration, the largest component of the retail price of gasoline is the cost of crude oil. The supply chain “immediately initiated how to pass on that cost,” Medlock said.
“If we see restrictions in the Strait of Hormuz… we will inevitably see crude oil prices jump,” he said, “and that will be reflected in gasoline prices.”
The Strait of Hormuz, located in the gulf between Oman and Iran, is considered one of the most important oil corridors in the world. Analysts have warned that a prolonged disruption of the Bosphorus could push oil prices above $100 per barrel.
Amy Myers Jaffe, director of New York University’s Energy, Climate Justice and Sustainability Laboratory, said it takes six weeks for crude oil to be processed and converted into gasoline, so the full impact may be delayed slightly.
“But as we know from the past, dealers tend to be fast when they’re going up and slow when they’re going down,” he said.
High gas prices hurt consumer budgets
Consumers are likely to see higher prices at the pump at a time when many people are already facing a challenge. affordability crisis.
Although the national average price of unleaded gasoline in the U.S. is still around $3 per gallon, even small price increases can strain household budgets.
US gasoline futures Jaffe rose 9.1% to $2.496 per gallon on Monday, its highest level since July 2024. Jaffe said this is the price paid by gasoline sellers in the spot market, not the price at the pump, but the increase reflects what’s in store for consumers.
Paying more for gas is especially difficult for many Americans, since buying fuel is generally not a discretionary expense.
“This is especially difficult for lower-income households, which spend a larger portion of the budget on gas,” said Mark Zandi, chief economist at Moody’s. “This is a group that is already under a lot of financial pressure.”
Additionally, Zandi said, “Higher gas prices have a huge impact because they hurt consumer sentiment.” “This affects their ability and willingness to spend, and that puts a burden on the economy.”
Each sustained one-cent increase in the cost of a gallon of gasoline increases spending on gasoline by about $1.4 billion a year, according to Zandi’s calculations Monday.
Even if you don’t drive, it’s nearly impossible to avoid the impact of high gas prices.
Other research shows that companies that see fuel costs rising may pass on at least some, if not all, of that expense to consumers in the form of surcharges or price increases.
