Higher energy prices caused by the U.S.-Israel war against Iran could ripple through the U.S. economy, adding to the burden on consumers at a time when the cost of living is already a top concern.
Oil prices have risen from about $67 a barrel before the war began on Feb. 28 to nearly $97 a barrel on Monday, as the conflict disrupts production and transportation in one of the most energy-rich regions on Earth. Crude oil prices briefly exceeded $100 per barrel on Sunday, but have since fallen slightly.
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Price tracking service GasBuddy reported Monday that the average price of gasoline in the U.S. rose 51 cents a gallon last week.
“Yes, yes, definitely,” said Alma Newell, 52, when asked at a gas station in the coastal city of Goleta, California, if she was worried about rising prices.
Newell, who has been out of work due to a shoulder injury, said she worries rising costs will strain her already limited budget.
“I’m not working right now, so that has a big impact on prices,” she says. “Food and rent are already very expensive.”
“It’s crazy,” she added. “Because war is really unnecessary.”
Living cost issue
The rise in prices could deepen dissatisfaction with President Donald Trump’s administration and put more political pressure on a White House already struggling to address cost-of-living issues ahead of crucial midterm elections scheduled for later this year.
“I think the current rise in oil prices suggests that by next week gasoline will be $3.50 to $4 in the U.S. and diesel will be $5 this week,” said Gregory Belew, senior Iran and oil analyst at Eurasia Group.
According to Gas Buddy, which has been tracking fuel prices going back to 2008, the highest average recorded price of gas at the pump was in June 2022, when the price soared to $5.034, a few months after the start of Russia’s war with Ukraine.
“The[current]impact is more political than economic, as higher gas prices could generate negative publicity and increase the perception that the government is not responding adequately to the economy. That means President Trump will feel even more political pressure to end this war quickly.”
A Pew Research Center poll conducted in early February suggested that concerns about rising costs of living were widespread before the U.S. and Israel launched their attacks on Iran, with 68% of respondents saying they were very or somewhat concerned about gas prices.
“I have a hybrid car myself and ride a bicycle, so I’m not too worried,” said Björn Vilmil, 72, at a gas station in Goleta, California. “But for ordinary people, the cost of living will become even higher. Prices are already high, and they will get even higher.”
continued confusion
Disruptions caused by the war include the closure of the Strait of Hormuz, a key node in global traffic and shipping. Iran has long said it could close the strait in the event of a confrontation between the United States and Israel.
About 20 percent of the world’s oil and a significant portion of its natural gas pass through the strait, mainly destined for Asia, but supplies are currently stalled as traffic through the narrow waterway has stopped. Iran’s attacks on the energy infrastructure of countries in the region have also led some countries to cut production.
Other economic sectors are also feeling the squeeze.
In the Northern Hemisphere, prices for fertilizers and other products essential to agricultural production are rising ahead of the spring planting season. Approximately 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 particularly likely to be hit hardest. Pakistan announced a series of austerity measures and cuts to fuel subsidies on Monday, while Bangladesh closed universities and announced restrictions on fuel use as a result of the war.
U.S. officials and countries around the world are already discussing measures to cushion the shock of rising energy prices, including the possibility of releasing strategic oil reserves to temporarily boost global supplies.
The G7 said on Monday it would take “the necessary measures” to support energy supplies, but refrained from announcing any release of strategic reserves, with energy ministers scheduled to meet on Tuesday to discuss the issue further.
The United States has one of the world’s largest strategic oil reserves, at more than 415 million barrels, which could be released in coordination with allies.
However, it is unclear when these measures will be implemented and how long it will take to bridge the gap created by the war.
Much depends on whether the war ends quickly or continues for weeks or months with the potential for further escalation, said Rachel Ziemba, a nonresident senior fellow at the Center for a New American Security.
So far, neither the United States, Israel nor Iran have signaled they intend to end the war anytime soon, but President Trump told CBS News on Monday that “the war is very complete, almost complete,” comments that helped ease some of the volatility in oil and stock prices.
“If the war continues, oil prices will not only remain high, but may even rise further as markets factor in prolonged power outages,” Ziemba said. “There are also questions about when it will end, how much damage there will be to infrastructure, and how quickly supplies can be restored.”
Early polling suggests the war is unpopular in the United States, with a Quinnipiac University poll released Monday showing 53% of voters opposed to President Trump’s military action against Iran, including 60% of political independents.
The lack of public support could create political headaches for President Trump and the Republican Party if voters associate the war with rising prices. Until now, President Trump has largely dismissed concerns about the impact of war on rising costs of living.
In a post on Truth Social on Sunday, President Trump said, “Near-term oil prices will fall quickly once Iran’s nuclear threat is destroyed, but it will be a very small price to pay for America, the world, security and peace.” “Only a fool would think otherwise!”
