U.S. gas prices hit $4 per gallon as fuel prices surge due to Iran war

U.S. gasoline prices rose above $4 a gallon for the first time in more than three years as an oil supply shock triggered by the Middle East war soared costs for families.

Pump prices averaged $4,018 nationwide, the AAA travel association said, the highest since August 2022, when Russia’s war against Ukraine rattled energy markets. Gas prices have risen more than 30 percent since the United States and Israel attacked Iran in late February, according to AAA data.

“We anticipate the potential for a disruption in American fuel supplies,” Lee Zeldin, head of the Environmental Protection Agency, told reporters at S&P Global’s CERAWeek conference in Houston last week. The EPA is temporarily lifting some regulations aimed at increasing gas supply to ease prices.

Executive Vice President J.D. Vance told consumers they face a “tough road” on gas prices in the coming weeks. Vance promised that the rise was temporary and that prices would fall after the war was over.

“We have a problem, we know we have a problem, and we’re doing everything we can to solve it,” the vice president said at a March 18 event in Auburn Hills, Michigan.

Oil prices have increased by more than 50 percent since the start of the war. International benchmark Brent prices are on track for record monthly gains since the futures contract was created in 1988. US crude oil is on track for its biggest gain in a single month since 2020.

Macquarie Group chief economic officer David Doyle said the average monthly gas price in March was expected to be 25% higher than in February. That would mark the biggest monthly increase since October 1990, Doyle said in a March 25 note to clients.

Diesel prices are on the rise

Diesel prices, meanwhile, surpassed $5 per gallon on March 17 and are now more than 40% higher than before the conflict. This has broad implications for the US economy. The fuel is used by trucks and freight trains that transport products to market.

“The consumer has already seen the sticker shock from rising gasoline prices and airfare increases resulting from the rising cost of jet fuel,” Andy Lipow, president of Lipow Oil Associates, told clients in a March 20 note.

“But the full effects of higher diesel prices have not yet been felt and this will be reflected in the economy over the next few months,” Lipow said.

Patrick De Haan, Head of Petroleum Analysis at GasBuddy, said consumers could see this impact by April through higher prices in supermarkets and online ordering. “This will spark additional inflation really quickly,” the analyst said on March 20.

Energy Secretary Chris Wright told CNBC last week that the administration plans to increase diesel supply.

“We have some ideas on diesel that we can bring more diesel to the market,” Wright told CNBC’s Brian Sullivan in an interview in Houston. “I think we’ll see that happen before long.”

Oil prices rose as tanker traffic in the Strait of Hormuz decreased due to Iranian attacks. The Bosphorus is the most important sea route for oil exports in the world. Before the war, about 20% of global oil supplies passed through the waterway.

Gulf Arab oil producers have cut production because there is not enough space to store crude oil, with the Strait effectively remaining closed. This led to the largest oil supply disruption in history, according to the International Energy Agency.

Trump actions

The Trump administration has taken various steps to stop rising prices. Given the size of the disruption, it is unclear whether the measures will provide relief to consumers. Analysts say that oil must start passing through the Bosphorus again for prices to ease.

“The president doesn’t have a lot of arms,” De Haan said.

The EPA has temporarily waived restrictions on the sale of E15 gas, a fuel blend containing 15% ethanol. Sales of E15 are restricted in about half of the United States during the summer months due to air pollution regulations.

The exemption will go into effect on May 1 and last until May 20, but could be extended, Zeldin said.

“We will continue to monitor supply with industry and federal partners,” the EPA administrator told reporters in Houston on March 25. “The agency will stand ready to extend emergency fuel exemptions as ongoing issues continue to demonstrate the need for action.”

The United States also extracts 172 million barrels of oil from the Strategic Petroleum Reserve. The action is part of a coordinated effort by more than 30 countries to inject 400 million barrels into the market to address the supply shock.

Trump waived strict shipping rules under the Jones Act for 60 days. The Jones Act requires U.S. ships to transport goods between local ports. Trump’s waiver of these rules would allow foreign ships to transport oil and gas in the United States, potentially reducing shipping costs.

De Haan said the Jones Act exemption would help gasoline reach the West Coast and Northeast of the United States, but would do little to help other parts of the country.

Congress could suspend the federal excise tax on fuel. Lipow said this will save consumers 18 cents per gallon on gasoline and 24 cents per gallon on diesel.

De Haan said gas prices could likely reach record levels of $5 per gallon if no one takes action to remove the bottleneck in the Strait of Hormuz. “It’s kind of a race against time,” he said.