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Oil prices rose for a second straight day Tuesday as the United States and Israel attacked Iran, lifting gasoline prices across the country and renewing concerns that energy costs could keep inflation elevated. AP reported that U.S. oil prices climbed more than 5% to $75.22 a barrel in afternoon trading, while gas prices jumped 11 cents to $3.11 a gallon nationwide on average, citing AAA.
The renewed pressure comes as Americans have already been dealing with affordability concerns that have become a top political issue, and economists said even a modest further rise in energy prices could add to those strains. They tied the scale of any economic impact to how long the conflict lasts and whether disruptions affect key shipping routes near the Strait of Hormuz, where about one-fifth of the world’s oil and natural gas shipments move, AP reported.
If the conflict ends quickly, economists said it might not have time to push up inflation or weaken the economy for long. But if the war stretches into months, AP reported that inflation would likely worsen, potentially topping 3% for the first time since early 2024. The transmission from higher crude prices to consumer costs can include transport and production inputs, including chemicals and plastics and industrial processes, AP said.
Energy price pressure can also widen through other markets. AP reported that natural gas prices have risen sharply, after a liquid natural gas plant was shut down in Qatar, and that could push up electricity prices in the United States. AP also noted that natural gas has already gotten about 10% more expensive over the past year, linking part of that increase to higher energy use from data centers powering artificial intelligence.
Inflation has also been stubborn in the background. AP reported that the Federal Reserve’s preferred measure has stayed at about 3% for roughly a year, above its 2% target, even as gas prices fell steadily in 2025. In that same context, the Fed’s preferred inflation gauge measured in the PCE Price Index framework stood at 2.9013% year-over-year as of March 3, 2026 in vintage FRED data for this article date.
Fed officials have signaled a shift in how comfortable they are with cutting rates in the near term. On Tuesday, AP reported, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis and a voting member of the rate-setting committee, said that before the Iran war he had supported at least one rate cut this year as inflation slowly cooled, but now he was “not so sure.” At a Bloomberg Invest conference in New York City, Kashkari said, “With the geopolitical events that we talked about, I just need to see,” adding, “We need to get a lot more data in.”
AP reported that, with inflation potentially headed higher, the Federal Reserve could delay additional rate cuts. Futures prices had forecast two rate cuts this year, but AP said the odds of those cuts were lower since the Iran war began.
Beyond inflation, economists said the conflict could also hit business and labor decisions by eroding confidence. Kathy Bostjancic, chief economist at Nationwide Financial, told AP: “When there is an injection of new uncertainty into the business environment … that’s a hit to confidence,” and AP reported that such confidence shifts could lead companies to invest and hire less if the war lasts for months.
Consumer sentiment is another channel economists pointed to. AP reported that Americans’ outlook on the economy is already gloomy, largely due to lingering effects from price spikes in the past five years, and that President Donald Trump’s efforts to portray the U.S. as being in a “golden age” have had limited impact on those attitudes. Alex Jacquez, chief of policy and advocacy at the Groundwork Collaborative and an economic adviser to the Biden White House, said a protracted conflict that raises gas prices would likely make Americans’ view of Trump’s economic leadership worse, adding: “People generally don’t think that President Trump is focused on the things that they are focused on,” and “and what they want him to be focused on is the price of groceries.”
Still, AP reported that some factors could keep the size of oil-price increases relatively limited. Rory Johnston, founder of Commodity Context, told AP that oil inventories were quite high before the conflict, which helped keep prices in check. He contrasted that with the winter of 2022, when post-COVID supply chain problems had already raised oil costs before Russia’s invasion of Ukraine drove a much bigger spike.