In a speech to the nation on April 1, President Donald Trump spoke of the Iran war, and the contest for control of the Strait of Hormuz, as if their outcome had little bearing on the market for oil and gasoline in the United States.
“The United States imports almost no oil through the Hormuz Strait and won’t be taking any in the future,” Trump said. “We don’t need it. We haven’t needed it and we don’t need it.”
It’s true that the United States is less reliant on foreign oil than at times in the past. And of the oil we do import, only 8% comes from the Middle East.
Why, then, have gasoline prices gone through the roof at America’s pumps?
On April 8, a gallon of regular gasoline cost $4.16 in the United States, on average, up from $3.45 a month ago and less than $3 at the year’s start, according to AAA.
Oil prices plunged the same day, on news of a fragile ceasefire. Gas prices may follow. But don’t expect a swift return to $3 gas.
“If the conflict stops and it has a kind of meaningful end to it, I would expect oil prices to fall relatively quickly,” said Jason Schenker, president of Prestige Economics, speaking just before the ceasefire. “I do not think they’re going to go all the way down to where they were.”
Why did the Iran war raise gas prices here?
America produces more than 13 million barrels of crude oil a day, as of January. We export more oil than we import. But we also consume a lot of oil, and we import about 6 million barrels a day. Only a small fraction comes from the Persian Gulf.
Based on those facts, you might think a war in the Middle East would have no bearing on gas prices in the United States. You would be wrong.
“It’s a global market,” said Mark Zandi, chief economist of Moody’s Analytics. “So, oil literally flows to the highest price. If a tanker can get a higher price in Malaysia than it can in Rotterdam than it can in Rio de Janeiro, it’s going to go to Malaysia.”
When the United States began airstrikes against Iran, oil prices spiked around the globe.
By one benchmark, the West Texas Intermediate index, crude oil prices rose from about $67 on February 27 to about $105 on March 30.
Oil prices rose because the Iran war crippled supply in the region, between the closure of the Strait of Hormuz, the sudden danger in shipping oil and collateral damage to oil-industry infrastructure, among other factors.
War threatened the oil supply to regions that rely heavily on oil from the Middle East, including parts of Asia and Europe. Prices spiraled everywhere, including here.
“Everybody’s competing for the same barrel of oil,” said James Cox, managing partner at Harris Financial Group. “It doesn’t matter whether it’s produced in Texas or Iran or Saudi Arabia or Russia.”
The United States is the top oil-producing nation on Earth. But we are also the top oil consumer. And America’s oil producers are part of the global market.
“We produce as much as we consume,” Zandi said. “But at the end of the day, the producers here are going to sell to whoever can give them the highest prices, as well. They’re businesspeople.”
The West Coast is particularly vulnerable to oil shocks in the Middle East, because more of its oil comes from that region. That’s one reason gas prices have soared to $5.93 a gallon in California, said Kate Gordon, CEO of California Forward, a nonprofit that advocates for sustainability.
“We get nothing from east of the Rockies,” she said.
This was no repeat of the 1970s oil crisis
California and the rest of the nation can take heart that the Iran war didn’t seed a gasoline shortage in the United States. There were long lines for gas, yes, but populated mostly by people who wanted to save a few bucks at Costco.
That’s a far cry from the oil crisis of the 1970s, which triggered rationing, price controls, shortages, a national 55-mph speed limit and long lines at gas stations across the nation.
For American consumers, economists say, the Iran war delivered more hardship than crisis. Motorists paid more for the gas they purchased. Petroleum companies earned more for the oil they sold.
Some other countries, more reliant on oil from the Middle East, introduced rationing, four-day workweeks and remote work and urged citizens to use less air conditioning and more public transportation.
“You could say the U.S. economy, on net, is somewhat insulated from the shock, because we are such a large supplier,” said Nikolai Roussanov, professor of finance at the University of Pennsylvania’s Wharton School. “But that doesn’t help the consumer at the pump.”
How soon after the ceasefire will gas prices fall?
With the ceasefire, many observers expect gas prices to fall quickly — but not to $3 a gallon.
With a ceasefire, “we’ll probably go back to $3.50 by late summer, but that’s probably where it’ll hang for a while,” Zandi said.
Oil and gasoline prices will remain elevated for several months, Cox said, unless some new source comes online.
“Insurance will rise on ships going through the Strait,” Zandi said. “There’s always a chance the ceasefire breaks,” he said, “and traders will want some premium to compensate for that risk.”
That premium “is probably going to persist for some time,” Cox said. He notes that oil futures, which speculate on prices at a future date, remain elevated through the end of 2026.
Oil infrastructure in the Middle East has been damaged or disrupted in the Iran war. Some of it “will take years and years to rebuild,” Gordon said. During that time, the world’s oil supply will remain pinched.
“There’s no going back to what we had,” Zandi said. “At least not this year.”