Gas Prices Rise after Strait of Hormuz Closure
* Gas prices are rising after the closure of the Strait of Hormuz
* High fuel costs impact American households and Trump’s political stance
* Analysts expect the crisis to be shorter than the 2022 Ukrainian conflict
(Article updated on March 30 with monthly data and analyst comments) by Nicole Jao and Noel John
The average price of gas in the United States surpassed $4 per gallon on Monday for the first time in over three years, marking the highest monthly increase in decades, according to GasBuddy price tracking service data, as the American-Israeli war against Iran has shaken global energy markets.
The $4 per gallon threshold was last reached in August 2022, after Russia’s invasion of Ukraine. Some analysts have described this level as a psychological barrier for consumers. Crude oil prices used to make gas have also risen, along with prices of many products, since Iran blocked most shipments through the Strait of Hormuz.
American households were already burdened by rising costs even before gas prices began to increase. This situation has posed a political challenge for President Donald Trump and Republican legislators campaigning to maintain a slim majority in both chambers of the U.S. Congress in the upcoming mid-term elections in November.
Mr. Trump had pledged to lower energy prices and increase oil and gas production in the United States. So far, much of his second term has been marked by market volatility, geopolitical turmoil, and changing policies on issues like tariffs.
The national average retail gas prices in the United States have increased by about $1.06 per gallon, or 36%, since the U.S. and Israel attacked Iran at the end of February. March’s monthly increase in gas retail prices is the highest recorded by GasBuddy since 2000.
“The price peak will have a short-term impact on economic data,” said Macquarie analysts last week regarding the possibility of the average gas price in the U.S. exceeding $4 per gallon. “There should be higher inflation figures and a potential increase in nominal spending growth,” the analysts stated.
PRICE CONTROL MEASURES AT THE PUMP PROVE INEFFICIENT
Gas pump prices could still rise as crude oil prices continue to climb due to signs of escalation in the Middle East war. On Monday, U.S. oil futures contracts exceeded $100 per barrel and remained close to that level on Tuesday, up about $33 per barrel since the U.S. and Israel attacked Iran at the end of February.
“Oil prices are now faced with a higher baseline for a long time,” said Société Générale analysts on Monday.
The Trump administration has taken steps to mitigate rising energy prices as the war continues, including a 60-day waiver on the Jones Act maritime transportation law. This waiver temporarily allows foreign-flagged ships to transport fuel, fertilizers, and other goods between U.S. ports.
The U.S. government has also agreed to release oil from the Strategic Petroleum Reserve as part of a coordinated global effort to control rising oil prices. Last week, Washington suspended anti-smog regulations on seasonal gasoline blends sold in the U.S.
According to analysts, the efforts made so far have only slowed down the surge in fuel prices and will not succeed in lowering them as long as the Middle East war rages on.
About 55% of people surveyed in a Reuters/Ipsos poll said their household finances had been at least “somewhat” affected by the rise in gas prices. Among those who noticed an impact, 21% said their finances had been “to a great extent” affected.
“The issue is not just crude oil itself. It’s gasoline, the most visible price in the economy for consumers, and when that price goes up, it immediately impacts psychology,” said Jeremy Siegel, an economist at WisdomTree, in a note. “This is important, even if the broader economic effect is more balanced than the headlines suggest.”
