A person refills his semi-truck at a Pilot Travelers Center in Lockhart, Texas, on March 9, 2026.
Brandon Bell | getty images
The U.S. economy is more vulnerable than ever to energy market problems caused by the Iran war. The economy has been remarkably resilient, but the buffers that previously protected Americans from rising prices are weakening.
The bottom line: War will destroy Americans’ standards of living this summer, even if the actual fighting remains more controlled than in the first phase of the conflict.
From President Donald Trump’s perspective, having precipitated a return to direct conflict with Iran, there is little he can now do to protect Americans from economic fallout.
The White House says the President has been honest with the American people and prices will fall soon. “As soon as U.S. forces reduce the terrorist Iranian regime’s ability to attack commercial vessels and disrupt the free flow of energy through the Strait of Hormuz, oil and gas prices will return to pre-conflict levels,” White House spokeswoman Taylor Rogers said in an email.
Anyone who has pumped water in recent times has already felt the pain. The national average price at the pump on Wednesday was $4.06 a gallon, up 4.4% from $3.89 a week earlier. according to aaa.
This is sad. But for the full economic impact, keep an eye on diesel, “because certainly it is the lifeblood of the US economy,” said Christian Lawrence, head of Americas and energy market strategy at Rabobank.
US Energy Information Administration benchmark Diesel prices rose nearly 34 cents last week to $5.13 a gallon, the biggest weekly increase since the first week of the war in March. Those data are used to determine fuel surcharges that airlines and other companies charge customers, which can lead to higher prices in the rest of the economy.
Of course, we’ve been here before. The beginning of the war in March saw oil prices rise and gas and diesel prices fall, but shooting stopped a few weeks later. With periodic reports that the US and Iran are trying to broker a new truce in the fighting, it may seem like a return to lower prices is only a Presidential Truth social post away.
Unfortunately, this is where things have changed, especially in economically important diesel.
“There’s a slightly asymmetric relationship in the sense that, if oil goes up, diesel prices are also going up,” Lawrence said. “If oil goes down, diesel prices may go down a little, but they will still be very high.”
Problems are growing in the refining sector that turns crude oil into distilled products that are actually pumped into cars and trucks. The EIA said on Wednesday that US refineries had reached a maximum of 96.1% of their capacity.
If refineries can produce more at that level, they will do so. When the war began American refineries sprang to work to help produce jet fuel and other products for European markets, which suddenly found themselves cut off from their suppliers in the Middle East.
The reserves that were exhausted at the beginning of the war have yet to be replenished amid summer demand. The EIA reported last week that storage at the key distribution point of Cushing, Oklahoma, has been at levels called for since early June. tank bottomThe level at which remaining fluid cannot be physically drained out.
Strategic Petroleum Reserve is decreased to 311 million barrelsThis is the lowest level since March 1983, according to EIA data.
Iran is not the only war still raging. Analysts at BofA Global Research say Ukraine has hit 24 of Russia’s 34 largest refineries over the past three months. Russia has turned from a supplier of diesel and other products to an importer, as China tries to replenish its own reserves.
More oil is now flowing through the Strait of Hormuz than at the height of the crisis in March, according to international energy agency However, the risk of ship attacks in the waterways remains. But that oil doesn’t help anyone unless it becomes useful to the global economy. That makes benchmark prices like Brent crude, at $94 a barrel on Wednesday afternoon, less important as an indicator than the retail prices consumers actually pay.
None of this is an immediate economic crisis, but it exacerbates the affordability pressures that have been weighing heavily on Americans for years. Inflation data provided a pleasant surprise last week when the consumer price index for June came in at a better-than-expected 3.5%. But the relief is probably temporary. Higher fuel prices will weigh on wage growth and force Americans to invest more in their savings.
A CNBC All-America Economic Survey released last week found that 37% of American voters said they are using credit cards more to pay for things because of higher prices on food and gas. It has increased by 6% since April as the war has dragged on.
The administration has tried to stop the bleeding. It directed a large-scale release of oil from the SPR, eased restrictions on ships carrying fuel and other commodities, and eased sanctions on Russian and Iranian oil. However, all of these measures are arguably already in place in the market, and it is not clear that the administration could take further measures in the short term.
A permanent end to the conflict would send oil prices lower, but gas and diesel could remain high at least until Labor Day, when there will be fewer people on the roads at the end of the summer. The increase in demand will eventually drive more refinery construction.
Lawrence said, “But it takes time. There is no short-term solution.”