A person refuels a semi-truck at the Pilot Traveler Center in Lockhart, Texas, on March 9, 2026.
Brandon Bell | Getty Images
The US economy is more vulnerable than ever to the energy market problems caused by the Iran war. Although the economy has shown remarkable resilience, the cushion that previously protected Americans from soaring prices is fading.
Bottom line: The war will erode Americans’ living standards this summer, even if actual fighting remains more subdued than in the first phase of the conflict.
From President Donald Trump’s perspective, there is little he can do to protect Americans from the economic fallout now that he has begun a return to direct conflict with Iran.
The White House says the president is honest with the American people and that prices will soon come down. “Oil and gas prices will plummet to pre-conflict levels if the U.S. military reduces the terrorist Iranian regime’s ability to attack commercial shipping and disrupt the free flow of energy through the Strait of Hormuz,” White House press secretary Taylor Rogers said in an email.
Anyone who has filled up their pump in the last few days has already felt the pain. The national average pump price on Wednesday was $4.06 per gallon, up 4.4% from $3.89 a week ago, according to AAA.
That’s painful. But for the full economics, look to diesel. “Of course diesel is the lifeblood of the US economy,” says Christian Lawrence, head of energy market strategy for the Americas at Rabobank.
The U.S. Energy Information Administration’s diesel benchmark rose nearly 34 cents last week to $5.13 a gallon, the biggest weekly increase since the first week of the war in March. These numbers are used to determine fuel surcharges that airlines and other companies charge customers, which can ripple price increases throughout the economy.
Of course we’ve been here before. When the war began in March, oil prices soared, followed by gasoline and diesel prices, but fell a few weeks later when the shooting stopped. With regular reports that the U.S. and Iran are rushing to pause new fighting, a return to low prices may seem like a no-brainer for the President’s Truth social post.
Unfortunately, things are changing, especially for economically important diesel.
“There’s a bit of an asymmetric relationship in the sense that when oil goes up, diesel prices go up,” Lawrence said. “If oil prices come down, diesel prices may come down a little bit, but they will still be quite high.”
Problems are piling up in the refining sector, which turns raw crude oil into the distilled products that actually go into cars and trucks. U.S. refineries are at 96.1% capacity, the EIA announced Wednesday.
If refineries can produce more at that level, they will. When the war began, U.S. refineries went into overdrive to help produce jet fuel and other products for European markets that were suddenly cut off from Middle Eastern suppliers.
Inventories depleted early in the war have not yet been replenished despite summer demand. EIA reported last week that storage at a critical distribution point in Cushing, Oklahoma, has been at the so-called bottom of the tank, or at a level where remaining liquid cannot be physically removed, since early June.
Strategic oil reserves have fallen to 311 million barrels, the lowest level since March 1983, according to EIA data.
Iran is not the only ongoing war. Ukraine has hit 24 of Russia’s 34 largest refineries in the past three months, according to analysts at BofA Global Research. Russia has switched from being a supplier of diesel and other products to an importer, just as China is trying to replenish its own stocks.
The International Energy Agency says more oil is now passing through the Strait of Hormuz than during the height of the crisis in March, even though attacks on ships in the waterway remain a risk. But that oil is of no use to anyone until it is turned into something useful for the global economy. That makes benchmark prices like Brent crude ($94 a barrel) at noon Wednesday less important as an indicator than the retail price consumers actually pay.
None of these will immediately lead to an economic crisis, but they will add to the affordability pressures that have weighed on Americans for years. Last week’s inflation data came as a pleasant surprise, with the consumer price index in June coming in at a better-than-expected 3.5%. But that respite is likely to be temporary. Rising fuel prices will eat into wage increases and force Americans to dip into their savings even further.
According to the CNBC National Economic Survey released last week, 37% of U.S. voters said they are using credit cards more to pay for purchases because of rising food and gas prices. It has increased by 6% since April as the war drags on.
The government is trying to stop the bleeding. It ordered the release of large volumes of oil from the SPR, eased restrictions on ships that can transport fuel and other supplies, and reduced sanctions on Russian and Iranian oil. However, all of these measures are believed to have already been priced into the market, and it is unclear whether the administration will be able to take any further steps in the short term.
A permanent end to the conflict would likely bring oil prices down, but gas and diesel prices are likely to remain high at least until Labor Day, when fewer people are on the roads in late summer. The surge in demand will eventually lead to more refinery construction.
“But this will take time. There are no short-term solutions,” Lawrence said.
