A surge in energy prices resulting from the U.S.-Israel war with Iran could ripple through the U.S. economy and place additional burdens on consumers at a time when cost of living is already a major concern.
Crude oil prices rose from about $67 a barrel before the war began on February 28 to nearly $97 on Monday. The price of oil rose to nearly $97 as the conflict paralyzed production and transportation in one of the most energy-rich regions on Earth. Oil prices briefly rose above $100 a barrel on Sunday before recovering slightly.
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Price tracker GasBuddy reported Monday that the average price of gasoline in the U.S. has risen 51 cents per gallon over the past week.
Asked if she was worried about price increases at a gas station in the coastal city of Goleta, California, Alma Newell, 52, said: “Yes, of course I am.”
Newell had lost his job due to a shoulder injury and was worried that rising costs could stretch his already limited budget.
“Prices are a big factor for me because I’m not working right now,” she said. “Food and rent are already too expensive.”
“This is crazy.” she added. “Because war is so unnecessary.”
cost of living problem
Rising prices could deepen discontent with US President Donald Trump’s administration and put greater political pressure on the White House, which is already struggling to address cost-of-living issues ahead of crucial midterm elections scheduled for later this year.
“I think the current oil price hike will see the U.S. expect gasoline prices to hit $3.50 to $4 by next week and diesel to $5 this week,” said Gregory Bru, senior analyst for Iran and oil at Eurasia Group.
According to Gas Buddy, which tracks fuel prices since 2008, the highest average gasoline price recorded at the pump was in June 2022, when prices soared to $5.034, months after Russia’s war against Ukraine began.
“The (now) impact is more political than economic, because higher gas prices could generate negative press and add to the perception that the government is not handling the economy properly, which means Trump will feel more political pressure to end this war quickly.”
A Pew Research Center poll in early February found widespread concern about the rising cost of living before the U.S. and Israel launched attacks on Iran, with 68% of respondents saying they were very or somewhat concerned about gasoline prices.
“I have a hybrid car and I ride a bike, so I’m not really worried,” said Bjorn Birmir, 72, who works at a gas station in Goleta, California. “But for the average person, the cost of living will become more expensive. Prices are already high and will only get higher.”
constant interruption
Disruptions caused by the war include the closure of the Strait of Hormuz, a key node for global shipping and shipping. Iran has long said it could close the strait if it confronts the United States and Israel.
About 20% of the world’s oil and much of its natural gas flows through the strait, mainly to Asia, but supplies are now stranded as traffic through the narrow waterway has been disrupted. Iranian attacks on the energy infrastructure of countries in the region have led to production curtailments in some countries.
Other economic sectors are also feeling the pressure.
Commodities such as fertilizers, which are essential for agricultural production, are rising in price ahead of the spring planting season in the Northern Hemisphere. About one-third of the world’s fertilizer trade passes through the Strait of Hormuz.
The effects of war could ripple throughout the global economy, with poorer countries hit particularly hard. Pakistan announced a series of austerity measures and cuts to fuel subsidies on Monday, while Bangladesh closed its universities and announced restrictions on fuel use in the wake of the war.
U.S. officials and countries around the world have already discussed measures to help cushion the impact of rising energy prices, including the possible release of strategic oil reserves to temporarily boost global supplies.
The G7 said on Monday it would take “necessary steps” to support energy supplies, but held off on announcing a public strategic reserve, with energy ministers scheduled to meet on Tuesday to discuss the issue further.
The United States has more than 415 million barrels of strategic oil reserves, the world’s largest, that can be released through cooperation with allies.
But it is unclear when these measures will begin and how long they can help fill the gap left by the war.
Rachel Ziemba, a senior fellow at the Center for a New American Security, said much depends on whether the war ends quickly or continues for weeks or even months with the potential for further escalation.
“The war is almost complete,” President Trump told CBS News on Monday, but so far neither the United States, Israel nor Iran have indicated any intention to stop the war any time soon. This helped alleviate fluctuations in crude oil and stock prices.
“If the war continues, not only will oil prices continue to rise, but a prolonged blackout could push market prices even higher,” Ziemba said. “There’s also the question of how much damage will be done to infrastructure once it’s over, and how quickly supplies can come back online.”
Early polls show the war is unpopular in the United States, according to a Quinnipiac University poll released Monday. A Quinnipiac University poll released Monday found that 53% of voters disapprove of Trump’s military action in Iran, including 60% of political independents.
This lack of public support could become a political headache for Trump and his Republican Party if voters associate the war with rising prices. So far, Trump has largely dismissed concerns about the impact the war could have on rising costs of living.
In a Truth Social post on this day, President Trump said, “The short-term oil price that will fall sharply once the Iranian nuclear threat is destroyed is a very small price to pay for the United States, the world, safety and peace.” “Only a fool would think differently!”
