Fuel prices have soared since the US and Israel began airstrikes against Iran. As of April 7, gasoline prices were up 40% and diesel prices were up nearly 50% compared to six weeks ago, before the strike began on February 28th.
This is the largest six-week increase in gas prices in history, both in percentage and dollar terms, according to a USA TODAY analysis of weekly data dating back to the 1990s. Gasoline and diesel prices have not yet reached the levels of 2022, when Russia invaded Ukraine, but prices started falling and rose faster in the recent surge.
Rising gas prices, already adding to the burden on Americans, are spreading the pain further across the economy, raising the price of everything that needs to be transported, including food. Food products have already been squeezed by years of inflation.
On April 7, President Donald Trump announced a two-week ceasefire agreement that included allowing Iranian ships to transit the Strait of Hormuz and providing some relief to oil prices. Approximately 20% of the world’s oil trade is transported through this strait.
However, the ceasefire appeared fragile as Iran again closed the strait on April 8 in response to continued Israeli bombardment of Lebanon.
Experts say even if the war were to end today, the effects would remain and it would take time for oil prices to fully recover. Moreover, the recovery in pump prices has lagged behind the recovery in oil prices.
“It would be a mistake for all involved to expect oil and gasoline prices to return to pre-war levels because of the destruction of oil production and refining facilities in the Middle East, as well as natural gas fields,” said Joe Brusuelas, principal and chief economist at consulting firm RSM US.
“It will take at most three to six months for the supply chain to be rebuilt,” Brusuelas said.
U.S. gas prices rose in every state, from $0.85 in Nebraska to $1.50 in Utah. In California, the price was $5.93 as of April 8th. Differences in state prices are due to cost structure. Roughly half of the cost people pay at the pump is crude oil. The other half includes refining, distribution, marketing and taxes, according to the U.S. Energy Information Administration.
The EIA, part of the Department of Energy, predicts gasoline prices will peak at $4.30 a gallon this month, and that prices will remain above pre-war levels through 2027.
These predictions were included in an April 7 statement outlining the impact of the Holmes closure on the U.S. energy market.
EIA Administrator Tristan Abbey said: “Just as we’ve never seen the Strait close before, we’ve never seen it reopen. We don’t know yet exactly what that will look like.”
Diesel prices have also risen rapidly over the past few weeks. With contracts in place, truckers and trucking companies will absorb the initial surge for about three months, Brueras said. However, once the contract ends, those costs will be passed on to the consumer, primarily for items associated with transportation and delivery, such as food.
For food, the impact is seen from the beginning to the end of the supply chain. We need fuel and energy to grow crops and raise livestock, and to package, refrigerate, and transport products.
For every 10% increase in fuel, food prices can rise by 2% to 3%, said John Ross, CEO of the Independent Grocers Alliance, which represents 2,600 U.S. stores. This is compounded by food inflation.
“As fuel price increases flow through the value chain, actual price increases are likely to arrive in mid-summer,” Ross predicted in a post in late March.
Similarly, every $10 increase in oil prices costs households an additional $450 in energy costs per year, Brusuelas said. Despite the ceasefire announcement, oil prices are still more than $30 higher than at the start of the war, which means an average household’s energy costs will increase by $1,350.
“What you’re looking at is a substantial tax increase,” Brusuelas said.
Americans’ demand for gasoline is what economists call inelastic, meaning people tend to drive about the same amount regardless of price. Therefore, more expensive gas means your budget has to be supplemented with other expenses.
“Typically, most people only get a raise once a year. They have to cut back on spending elsewhere or take out more credit to pay for rising gas prices,” Brusuelas said.
To see how grocery prices are changing in your area, check out our grocery tracker here.
