U.S. gasoline prices have surged above $4 per gallon for the first time in more than three years, as the oil supply shock triggered by the Middle East war rapidly drives up costs for families.
Prices at the pump hit a nationwide average of $4.018, the highest level since August 2022 when Russia’s war against Ukraine shook energy markets, the travel association AAA said. Gas prices have soared more than 30% since the U.S. and Israel attacked Iran in late February, according to AAA data.
“We foresee potential for a disruption to the American fuel supply,” Lee Zeldin, head of the Environmental Protection Agency, told reporters at S&P Global’s CERAWeek conference in Houston last week. The EPA is temporarily lifting some regulations to increase gas supplies in an effort to ease prices.
Vice President JD Vance told consumers they face “a rough road ahead” on gas prices in the coming weeks. Vance promised that the spike is temporary and prices will fall after the war has ended.
“We’ve got a problem, we know we have a problem, and we’re doing everything we can to address it,” the vice president said at an event in Auburn Hills, Michigan on March 18.
Oil prices have surged more than 50% since the war began. Brent prices, the international benchmark, are on pace for a record monthly gain dating back to the creation of the futures contract in 1988. U.S. crude oil is heading to its biggest gain in a single month since 2020.
The average monthly gas price in March is expected to be 25% higher compared with February, said David Doyle, head of economics at Macquarie Group. This would mark the largest monthly increase dating back to October 1990, Doyle told clients in a March 25 note.
Diesel prices surge
Diesel prices, meanwhile, crossed $5 per gallon mark on March 17, and are currently more than 40% higher than they were before the conflict. This has broad implications for the U.S. economy. The fuel is used by trucks and freight trains that transport goods to market.
“The consumer has already seen the sticker shock from rising gasoline prices and increased airline ticket prices from the rising cost of jet fuel,” Andy Lipow, president of Lipow Oil Associates, told clients in a March 20 note.
“However, the full effects of the higher diesel prices has yet to be felt and that will flow through the economy over the next few months,” Lipow said.
Consumers could see the impact by April through higher prices at the supermarket and for their online orders, said Patrick De Haan, head of petroleum analysis at GasBuddy. “This is really quickly going to ignite additional inflation,” the analyst said on March 20.
Energy Secretary Chris Wright told CNBC last week that the administration has plans to increase the diesel supply.
“We do have some ideas on diesel, that we can bring extra diesel to the marketplace,” Wright told CNBC’s Brian Sullivan in an interview in Houston. “I think we’ll see that happen before too long.”
Oil prices have surged because tanker traffic through the Strait of Hormuz has plunged due to attacks by Iran. The Strait is the most important sea route for oil exports in the world. About 20% of global oil supplies passed through the waterway before the war.
Gulf Arab oil producers have cut production because they are running out of space to store crude as the Strait remains effectively closed. This has led to the biggest oil supply disruption in history, according to the International Energy Agency.
Trump actions
The Trump administration has taken several actions to blunt rising prices. It is unclear whether the measures will provide relief to consumers given the scale of the disruption. Oil needs to start moving through the Strait again for prices to ease, analysts say.
“The president doesn’t have a whole lot of levers,” De Haan said.
The EPA has temporarily waived restrictions on the sale of E15 gas, a fuel blend that contains 15% ethanol. The sale of E15 is restricted in about half the U.S. during the summer months due to air pollution regulations.
The waiver takes effect May 1 and will last through May 20 but it could be extended, Zeldin said.
“We will continue to monitor the supply with industry and federal partners,” the EPA administrator told reporters March 25 in Houston. “The agency will be ready to extend the emergency fuel waivers as ongoing issues continue to present the need for action.”
The U.S. is also releasing 172 million barrels of oil from its Strategic Petroleum Reserve. The action is part of a coordinated effort by more than 30 nations to inject 400 million barrels into the market to address the supply shock.
Trump has waived strict shipping rules under the Jones Act for 60 days. The Jones Act requires U.S. ships to transport goods between domestic ports. Trump’s waiver of those rules would allow foreign vessels to deliver oil and gas in the U.S., potentially reducing transportation costs.
The Jones Act waiver will help gasoline get to the U.S. West Coast and the Northeast but it won’t do much for other regions of the country, De Haan said.
Congress could suspend the federal excise tax on fuel. This would save consumers about 18 cents per gallon on gasoline and 24 cents on diesel, Lipow said.
Gas prices could conceivably hit record levels of $5 per gallon if nobody acts to clear the bottleneck in Strait of Hormuz, De Haan said. “It’s kind of a race against time,” he said.
