Surging energy prices caused by the US-Israel war on Iran could ripple across the United States economy, heaping further strain on consumers at a time when cost-of-living issues are already a primary concern.
The price of crude oil increased from about $67 per barrel before the war began on February 28 to nearly $97 on Monday, as the conflict snarls production and transport in one of the most energy-rich regions on earth. Oil temporarily passed $100 per barrel on Sunday before slightly easing back.
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The price tracker GasBuddy reported on Monday that the average price of gas in the US has risen by 51 cents per gallon over the last week.
“Yes, yes, definitely,” said 52-year-old Alma Newell when asked if she was worried about price increases at a gas station in the coastal city of Goleta, California.
Newell said she is out of work with a shoulder injury and worried that rising costs could stretch her already limited budget.
“The prices have a big impact because I’m not working right now,” she said. “Food and rent are already very expensive.”
“It’s crazy,” she added. “Because the war is so unnecessary.”
Cost of living issues
Rising prices could deepen frustration with the administration of US President Donald Trump and put greater political pressure on the White House, already struggling to address cost-of-living issues with the crucial midterm elections set to take place later this year.
“I think the current price increase in oil suggests the US will see $3.50 to $4 gasoline by next week, and $5 diesel this week,” said Gregory Brew, a senior analyst on Iran and oil at the Eurasia Group.
The highest recorded average for gas prices at the pump was in June 2022, when prices soared to $5.034, months after the Russian war on Ukraine started, according to Gas Buddy, which tracks fuel prices going back to 2008.
“The impact 1773122954 is more political than economic, as high gasoline prices generate negative press and can add to the perception that the government is not properly handling the economy. That means Trump will feel more political pressure to end this war quickly.”
A Pew Research Center poll in early February suggested widespread anxiety about the rising cost-of-living before the US and Israel launched attacks on Iran, with 68 percent of respondents saying they were very or somewhat concerned about gas prices.
“I’m not too worried myself because I have a hybrid car and ride my bike,” said 72-year-old Bjorn Birmir at the gas station in Goleta, California. “But for people in general, it will make life more expensive. Prices are already high, and it will make them even higher.”
Ongoing disruptions
The disruptions caused by the war include the shuttering of the Strait of Hormuz, a key node in global transit and shipping. Iran has long said that it could close down the strait in the event of a showdown with the US and Israel.
About 20 percent of global oil and a significant portion of natural gas pass through the strait, predominantly to Asia, supplies that are now stranded as traffic through the narrow waterway has ground to a halt. Iranian attacks on energy infrastructure in countries across the region have also led some countries to scale back production.
Other economic sectors are also feeling the squeeze.
Goods such as fertiliser, vital for agricultural production, are seeing price increases just ahead of the spring planting season in the Northern Hemisphere. About one-third of the global fertiliser trade passes through the Strait of Hormuz.
Effects of the war could ripple throughout the global economy, with poor countries especially hard-hit. Pakistan announced a series of austerity measures and cuts to fuel subsidies on Monday, while Bangladesh shuttered universities and announced restrictions on fuel use as a result of the war.
US officials and countries around the world have already discussed measures to help ease the shock of rising energy prices, including the potential release of strategic oil reserves in a bid to temporarily boost global supply.
The G7 said on Monday that it would take “necessary measures” to support energy supplies, but held off on announcing the release of strategic reserves, with energy ministers set to meet on Tuesday to discuss the matter further.
The US has a strategic oil reserve of more than 415 million barrels, one of the largest in the world, that it could release in coordination with allied countries.
But it is unclear when these measures would kick in and how long such steps could help fill the gaps created by the war.
Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, says that much depends on whether the war is brought to a speedy conclusion or continues on for weeks or even months, with the possibility of further escalation.
Thus far, neither the US and Israel nor Iran has suggested it are willing to stop the war anytime soon, although Trump told CBS News on Monday that “the war is very complete, pretty much”, comments that helped ease some of the price swings in oil and stocks.
“If the war continues, we would see oil prices not only remain elevated, but perhaps rally further as markets price in a more protracted outage,” said Ziemba. “There’s also the question of, when it does end, how much damage will be done to infrastructure and just how quickly supplies could come back online.”
Initial polling has suggested that the war is unpopular in the US, with a Quinnipiac University poll released on Monday finding that 53 percent of voters who responded oppose Trump’s military action in Iran, including 60 percent of political independents.
That lack of popular support could present a political headache for Trump and his Republican Party if voters connect the war to increasing prices. Thus far, Trump has largely dismissed concerns about the war’s possible impact on the rising cost of living.
“Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for USA, and World, Safety and Peace,” Trump said in a Truth Social post on Sunday. “ONLY FOOLS WOULD THINK DIFFERENTLY!”