Pressure at the Pump: Will High Gas Prices Shake the U.S. Economy?
Gas prices have skyrocketed due to the Iran war, reaching levels not seen since the Russian invasion of Ukraine in 2022. The national average price of a gallon of unleaded gasoline increased from $2.98 in late February 2026 to more than $4.50 over the Memorial Day weekend — the start of the summer driving season, when gas prices typically rise even in the best of times.1
In California, the most expensive state, the average price was over $6 per gallon, while in Mississippi, the least expensive state, it was about $4 per gallon. Wherever you live, the price at the pump has probably risen by roughly 50% since the war began.2
The cost of crude
According to the U.S. Energy Information Administration, the cost of crude oil accounted for 52% of the cost of gasoline as of February 2026. Other components included refining (17%), distribution and marketing (13%), and taxes (18%). The current high cost of gasoline is directly related to high oil prices due to restricted shipping through the Strait of Hormuz, a narrow passage out of the Persian Gulf that normally carries about 20% of the world’s oil. The price of Brent crude, the global benchmark, spiked by 94% from February 27 to April 7 and was still up 44% in late May.3
Although the United States is the world’s largest oil producer and receives little oil through the strait, oil is a global commodity and high global prices affect prices everywhere. The price of West Texas Intermediate crude, the U.S. benchmark, saw similar increases over the same period.4
State and local factors
Along with oil costs and taxes, the price at your local gas station is driven by other factors, including the distance from supply sources (refineries, ports, pipelines, and blending terminals), localized supply disruptions, local competition and operating costs, and state fuel formulation standards. The Gulf region and the South generally have the lowest prices because of lower state taxes, a heavy concentration of refineries and pipelines, and less restrictive fuel formulation standards. The West Coast generally has the highest prices due to higher state taxes, fewer refineries and pipelines, and more restrictive fuel formulation standards. In other regions, there are a mix of high-, medium-, and low-cost states.5–7
When will prices come down?
The federal government has taken a number of steps to help mitigate the oil shortage, including releasing 172 million barrels from its strategic oil reserves (with deliveries to oil companies from June to August), waiving sanctions on Russian oil already at sea, and suspending a law requiring transportation between U.S. ports to be on U.S. vessels.8–10 President Trump has proposed suspending the federal gas tax of $0.18 per gallon.11
While these measures may help slow the increase in gas prices, it’s unlikely that prices will drop significantly for some time, even after the Strait of Hormuz is fully open to maritime traffic. One industry expert projected that the national average price of gas could exceed $5 per gallon by mid-June unless the strait is reopened.12
The burden of fuel costs
It’s estimated that Americans spent about $50 billion more on gasoline and diesel fuel from the beginning of the Iran war on February 28 to late May than they did during the same period a year ago.13 Another estimate, which includes only gasoline, projected that additional spending would reach $172 billion by the end of the year if gas prices remain near current levels.14
These figures do not capture higher prices for many other goods due to increased transportation costs. The cost of diesel fuel used by trucks to carry goods across the country was up by 45% through late May, while jet fuel was up by almost 60%.15
The closing of the strait has also affected the cost of other critical materials, including fertilizers.16 A Farm Bureau survey found that 70% of farmers said they would not be able to afford all the fertilizer they need for this growing season, which could reduce crop yields and put further pressure on food prices later this year.17
The K-shaped economy
All of these price increases hit lower-income Americans the hardest, further exacerbating the so-called K-shaped economy, where spending by wealthier consumers continues to rise while spending by lower-income consumers declines.18 This disparity is likely to get worse before it gets better. Inflation rose at an annual rate of 3.8% in April — the highest level since May 2023 — while wages rose at just 3.6%, the first time in three years that annual inflation outpaced wages.19
Consumer spending accounts for two-thirds of gross domestic product (GDP), and it remains to be seen whether spending by wealthier Americans can continue to sustain the economy. Real (inflation-adjusted) GDP grew at a relatively weak 1.6% annual rate in the first quarter of 2026, which included the first month of the Iran war, before the full effect of higher fuel prices had cascaded through the economy. The advance estimate for Q2 GDP growth will not be available until late July.20
The combination of rising inflation and lower wages complicates the path for the Federal Reserve in setting interest rates. While it was anticipated that the Fed would lower rates this year, analysts now project that rates may stay the same or even be increased if inflation continues to rise.21 Higher rates might slow inflation but could put further pressure on lower-income consumers who depend more on credit to maintain their spending.
The U.S. economy survived the shock of high gas prices four years ago and came back stronger. It likely will survive this as well, but it may be a rocky ride this summer.
Projections are based on current conditions and may not come to pass.