Higher Oil Prices Have Cost U.S. Consumers $45 Billion Since Iran War Began
- Americans have spent roughly $45 billion more on gasoline and diesel since the Iran war and Strait of Hormuz disruption began, with lower-income households hit hardest by soaring fuel costs.
- U.S. gasoline prices are at their highest Memorial Day levels since 2022, with analysts warning prices could climb to $5 per gallon if Hormuz remains blocked.
- While rising energy costs are squeezing consumers and hurting purchasing power, wealthier Americans are benefiting from record-high stock markets and rising financial assets.
As U.S. drivers face the highest Memorial Day gasoline prices in four years, American consumers are paying billions of dollars more on gas and diesel than they did a year ago.
The global oil supply shock, created by the Iran war and the closure of the Strait of Hormuz, is affecting Americans disproportionately.
The lower-income households are being hit the most as their purchasing power is being eroded by $45 billion in extra costs on fuel compared to a year ago.
At the other end of the spectrum, affluent Americans see their financial assets rise as the S&P 500 rallies to record highs.
Two and a half months after the Iran war crippled oil and fuel supply from the Middle East, Americans have already paid $45 billion more on gasoline and diesel than they did at the same time last year, the Wall Street Journal has estimated, based on an analysis of OPIS pricing data and U.S. fuel demand figures.
The Watson School of International and Public Affairs at Brown University published a report on Sunday, estimating that the extra fuel costs to U.S. consumers have topped $40 billion, or more than $300 per household, since the start of the war.
These extra costs to Americans, for example, exceed the $31.5 billion estimated cost of completely redoing the U.S. air traffic control system.
“Overall, the higher prices resulting from this conflict increase the everyday costs of Americans. This data shows that energy price shocks function as an economy-wide, unacknowledged tax on households, with costs comparable to large federal programs and policies,” the authors of the report wrote.
Between March 1 and May 12, Americans collectively spent about $28 billion more on gasoline alone, according to Patrick De Haan, Head of Petroleum Analysis at GasBuddy.
“At the current rate Americans are spending more on gasoline due to the Iran war, the daily savings from suspending the federal gas tax of 18.4c/gal would be erased in just 2 hours and 49 minutes if it was implemented today,” De Haan noted last week.
U.S. President Donald Trump last week said the Administration is considering a temporary removal of the federal gas tax in response to soaring retail fuel prices that have dampened consumer sentiment, sending it to its lowest since the early 1950s.
Later in the week, just before departing for Beijing, President Trump was asked by reporters if increasing financial pressure on American households could influence his negotiation tactics with Iran. And he was recoded telling reporters “The only thing that matters when I'm talking about Iran, they can't have a nuclear weapon. I don't think about Americans' financial situation, I don't think about anybody.”
Certainly, the Trump Administration does think about the higher energy costs, mostly in the optics of how these would affect the Republicans’ chances in the midstream elections in November.
Energy costs for Americans are soaring and the lower-income households are feeling the price spikes the most.
The average U.S. gasoline price has topped $4.50 per barrel, drivers face the highest prices at the pump for Memorial Day since 2022, and if the Strait of Hormuz remains closed for more weeks, the U.S. average gasoline price could hit $5 per barrel within weeks.
“If the Strait doesn't re-open soon, I believe we could see the national average price of gasoline reaching $5/gal as early as sometime in June,” GasBuddy’s De Haan said last week.
As in any oil and economic shock, there are winners and losers.
In the U.S., the wealthiest are winning with record yields of their financial assets. But the much larger group of the not-so-affluent consumers is grappling with soaring energy costs, which will soon translate into higher costs of all consumer goods. Unfortunately for the Trump Administration, the 1% and their votes are not as many as the votes of lower-income consumers.
By Tsvetana Paraskova for Oilprice.com
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