Gas Prices Have Jumped Since the Iran War Began, But Is It Enough to Keep Americans Off the Roads?

Key Takeaways

• The national average gas price has risen nearly 20% since the Iran war began, an increase that experts say threatens to aggravate inflation but won’t keep Americans off the road.
• Oil prices were down sharply on Tuesday on hopes the war’s disruptions to global oil supply will be short-lived.

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Gas prices are up sharply since the start of the Iran war, but experts say they have a ways to go before Americans start canceling roadtrips and trading in their SUVs for EVs.

The price of a gallon of gas at Casey’s General Store (CASY) has risen about 30 cents since the war in Iran began, putting the chain’s average fuel price “in the low $3 a gallon range,” said CEO Darren Rebelez in the company’s quarterly earnings call on Monday evening. “That’s still 30 cents below the starting point when the Ukraine war began,” Rebelez added. “So, we’re actually sitting in a really low position.”

Oil and gas prices have soared since the U.S. and Israel began strikes against Iran late last month. Crude oil on Sunday jumped above $100 a barrel for the first time since Russia invaded Ukraine in 2022. Prices moderated Monday and were down 8% Tuesday afternoon as world leaders mulled ways to ease the oil supply crunch stemming from Iran’s closure of the Strait of Hormuz, a vital link in the global energy supply chain.

Why This Is Important

Higher oil and gas prices can weigh on economic activity through a variety of channels—they weigh on discretionary spending by increasing transportation costs, and raise the price of everyday goods as those higher costs are passed on to consumers. Wells Fargo analysts warned on Tuesday oil prices persistently above $130 a barrel could tip the U.S. into a recession.

Gas prices, on the other hand, rose for a ninth straight day on Tuesday, putting the national average at about $3.54 a gallon, a 19% increase from pre-war levels. Though Tuesday’s slump in oil prices should offer drivers some relief in the near term. Patrick De Haan, head of petroleum analysis at GasBuddy, said Tuesday declines “could act to greatly throttle back gas price increases.” He estimated the national average would “stall out soon” around $3.60.

That’s well below the price that usually leads consumers to make long-lasting changes to their driving and spending habits, according to Casey’s executives. “We really don’t start to see any level of demand destruction until we’re approaching $5 a gallon,” said Rebelez on Monday. The last time the national average was above $5 was June 2022, the same month that post-pandemic inflation peaked at a 40-year high.

The U.S., as the world’s largest producer of both oil and natural gas, is far more resilient to energy price shocks than it once was. Higher oil prices are expected to put upward pressure on inflation, but some analysts predict those prices will create a counterbalancing boost to economic growth.

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Oil Prices Fall—But Gas Prices Are Still Climbing. See What Your State Is Paying at the Pump.

What Determines Gas Prices?

Still, there’s ample risk that oil and gas prices resume their march higher. Hopes for de-escalation were buoyed when President Donald Trump predicted Monday the war would end “very soon.” But experts point out that decision isn’t the president’s to make. “As a seasoned foreign policy hand emphasized to us last week, one state can start a war, but its conclusion typically requires the assent of multiple parties,” wrote analysts at Carlyle on Tuesday.

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