Iran war sends oil prices higher, with effects spanning the pump and daily bills
As the war in Iran ratchets up, crude oil prices have been swinging sharply and rising, and consumers in the United States are beginning to feel the effects through higher fuel and transportation-related costs. The Associated Press reported that Brent crude—the international benchmark—was trading above $110 a barrel as the conflict destabilized worldwide energy production. The story’s focus is how that oil shock can move from global markets into household budgets, first at the gas pump and then through shipping, heating and food prices.
At the pump, AP reported that gasoline prices in the United States are near their highest levels since 2022. Drivers were paying an average of $3.88 for a gallon of regular gasoline on Thursday, compared with $2.98 before the war started, and prices had increased about 30% since the U.S. and Israel attacked Iran. Prices vary by state: AP reported that California drivers were paying nearly $5.62 a gallon and that Louisiana’s average was $3.52, while Oklahoma’s average was $3.24.
Penfield, a professor of supply chain practice at Syracuse University, told AP that $4 a gallon is often the “tipping point” for consumers. He said consumers start to pull back when prices reach that level, including by driving less or cutting discretionary outings, and that people face choices about how to allocate money between travel and fuel.
The AP report also linked oil prices to diesel, which powers many freight shipments. AP said diesel was nearly $5.10 a gallon in the U.S. on Thursday, a 36% jump since the war started. Patrick De Haan, a petroleum analyst at GasBuddy, wrote on X that higher gasoline and diesel prices were costing the U.S. economy “half a billion dollars more every single day (and rising)” versus three weeks earlier, describing it as a “staggering rise” and “near record-setting.”
Beyond transportation fuel, AP said the shipping industry faces added pressure as energy prices rise. The report said the effective closure of the Strait of Hormuz—described as a key waterway carrying a fifth of the world’s crude oil and liquefied natural gas—has already created problems for shipping, and rising fuel costs add to that burden. Penfield said fuel prices account for 50% to 60% of the total operating cost of shipping goods by ship, and that higher fuel prices are reflected in added per-container surcharges, including “war surcharges” and fuel “surchargers,” with increases of “anywhere from 10% to 20%, 30%,” depending on where goods are moving.
The higher cost of energy can also show up in home bills. AP reported that heating your home and cooking with natural gas are likely to cost more as the war continues, and it cited that Europe’s benchmark natural gas had risen roughly 71% since the war began, based on Intercontinental Exchange data. The report said natural gas is also used as a petrochemical feedstock, affecting items made from it, including plastic and rubber and nitrogen fertilizer.
Food costs may lag in the short run but could rise if elevated prices persist, AP reported. David Ortega, a professor of food economics and policy at Michigan State University, said U.S. grocery prices might not feel the oil spike immediately, but that the market could move “into different territory” if oil prices stay high for a month or more. Ortega told AP that higher oil prices raise costs for agriculture by increasing expenses for fuel used by farm equipment and for fertilizer derived from natural gas.
Ortega also said oil-driven pressures can show up in food processing and transporting, not just on-farm input costs. AP reported that he said a larger share of what consumers pay comes from processing and transporting food, which uses a lot of energy, and he said “Food gets to the grocery store on diesel, whether it’s on a truck or on a boat.” He added that fresh foods that must move quickly could face faster price hikes than packaged foods that last longer.
In the broader economy, AP reported that higher oil prices can intensify inflation concerns and constrain consumer spending. The report said U.S. oil prices had increased by roughly 43% from prewar levels to about $96 a barrel on Thursday, and it cited economist Gregory Daco, chief economist at EY-Parthenon, who estimated that the gas-price bump could push monthly inflation to as high as 1% in March—described as the highest monthly increase in four years—with yearly inflation nearing 3%. Daco told AP that this would be “a significant shock in and of itself.”
Mark Mathews, chief economist and executive director of research at the National Retail Federation, told AP that higher gas prices would likely affect consumer spending, especially for lower-income shoppers. He said U.S. households pay an average of $2,500 a year, or nearly $50 a week, to fill up, and that if shoppers paid about $10 more per week, their budgets would be affected, leading to cuts in areas like going out to eat or entertainment. Francesco D’Acunto, a finance professor at Georgetown University, said households’ inflation expectations “immediately increase” when core necessities such as gas or groceries jump, which could cause people to shift spending even before other prices rise; he also said that combined inflation shocks and geopolitical uncertainty could lead households to “freeze” and hold off on larger investments like buying a car or house.
Some officials and businesses are watching for whether costs can be contained. AP reported that Mathews expects retailers will absorb higher transportation costs temporarily, as they did with higher tariffs, before increasing prices. AP also reported that Italian Finance Minister Giancarlo Giorgetti warned against passing higher energy costs on to consumers, telling a G7 meeting on March 9 that leaders must act to stop energy prices from spreading to all consumer goods, recalling what happened after Russia invaded Ukraine.