The US and Israeli war against the Islamic Republic has rocked global energy markets, with crude and fuel prices surging as the Strait of Hormuz remains largely closed to traffic. US crude prices settled above $100 a barrel for the first time since 2022 on Monday, and the rally has been more acute in products that consumers use like gasoline and diesel. Already, retail diesel prices have risen above $5.40 a gallon, a key pain point for the broader economy.
The surge in retail gasoline poses a political risk for President Donald Trump’s White House in a midterm-election year. In addition, the gains stand to complicate the challenge for the Federal Reserve, as Chair Jerome Powell and policymakers seek to both keep inflation in check while sustaining employment.
The costlier US pump prices echo increases seen around the world since the outbreak of the war. Among them, gasoline in Japan surged to a record earlier this month. Elsewhere, shortages have emerged, with some fuel stations running dry in Australia. Prices have also spiked in Sri Lanka and Thailand.Retail US gasoline prices have risen by more than $1 in 30 days, on par with some of the sharpest spikes over the last 20 years. The surge has also been faster than the initial jump in prices in 2022, as oil markets anticipated and reacted to Russia’s invasion of Ukraine.
The White House has unleashed a slew of measures looking to try to tamp down prices. They included a 60-day waiver of the Jones Act, which allows overseas-flagged vessels to carry fuel between US ports, as well as a waiver for the fifth consecutive year to exempt cheaper E15 gasoline from summer volatility requirements.
But neither move has meaningfully brought down fuel prices so far. Some 61% of adults disapproved of Trump’s handling of the economy in an Associated Press poll conducted from March 19 to 23.
For every $1 increase in pump prices, consumer sentiment as measured in the University of Michigan’s survey goes down by 4.5 index points or more, even after factoring in other economic impacts, according to research from Ryan Cummings and Neale Mahoney at Stanford University’s Institute for Economic Policy Research.
That “is roughly saying, people feel 5% worse about the economy for every dollar that prices increase at the pump,” said Cummings, the institute’s chief of staff, and a former staff economist in the Biden administration’s Council of Economic Advisers from 2021 to 2023, who worked on gasoline policy.
