The national average price for a gallon of regular gasoline reached $3.93 on Saturday, according to AAA, a surge of 24% from $2.98 on February 26th, the day before the U.S. And Israel launched attacks on Iran. The escalating cost of fuel is already reshaping consumer spending habits, with gasoline expenditures up more than 14% year-over-year in the second week of March, according to data from the Bank of America Institute.
The price increases are directly linked to disruptions in the global oil market following the conflict. Iran’s blockade of the Strait of Hormuz, a critical shipping lane for approximately one-fifth of the world’s oil supply, is the primary driver. Brent crude, the international standard, traded at over $108 a barrel on Wednesday, a significant increase from roughly $70 just weeks ago. Benchmark U.S. Crude is now approaching $98 a barrel.
Economists at the Stanford Institute for Economic Policy Research estimate that the average U.S. Household will spend an additional $740 on gasoline this year as a result of the price jump. This increased expense threatens to offset the larger tax refunds many Americans are expecting this year, with the nonpartisan Tax Foundation estimating an average individual refund of $748 higher than last year due to recent tax cuts. Pantheon Macroeconomics estimates that larger refunds will boost household budgets by a combined $10 billion between February and April, but this gain will be largely absorbed by the $15 billion monthly reduction in real incomes caused by higher fuel costs.
The impact is being felt across the country. Amanda Acosta, a resident of Louisiana, told the Associated Press, “I’m getting way less gas and paying way more money.” The Bank of America Institute’s data suggests consumers are responding by reducing spending on discretionary items. RSM chief economist Joe Brusuelas warned that the situation represents a “short-term affordability shock” that will “restrain consumption and growth.”
The White House is facing scrutiny over the rising prices. Former President Donald Trump previously touted his ability to keep gas prices low, but has since attempted to frame the current increases as a positive outcome for the U.S. Economy. The situation is unfolding as the conflict in Iran continues, with the potential for further escalation and prolonged disruption to global oil supplies.
As of earlier this month, overall tax refunds were averaging $3,676, an 11% increase from the same period last year, according to the IRS. The duration of the impact on household finances remains contingent on the length of the conflict and the continued blockage of the Strait of Hormuz.
