What the Iran War Is Actually Doing to Gas Prices

What Happened, Briefly

On February 28, 2026, the US and Israel launched 900 strikes on Iran. Almost immediately after, Iran's IRGCIRGCIslamic Revolutionary Guard Corps — Iran's elite paramilitary force, separate from the regular military. It controls Iran's proxy network, including Hezbollah and the Houthis, and declared the Strait of Hormuz closed after the US-Israel strikes.See full definition ↓ declared the Strait of Hormuz — the narrow 21 mile-wide waterway through which approximately 20% of the world's daily oil supply passes — closed. Major shipping companies who usually use the strait suspended all transits.

The energy market reaction was severe. Crude oilCrude oilUnrefined petroleum extracted from the ground. It is the primary input for gasoline, diesel, jet fuel, and many petrochemicals. Crude oil accounts for approximately 51% of the retail price of a gallon of gasoline.See full definition ↓, which was trading at approximately $58 per barrel at the start of 2026, surged past $100, peaking near $120 in the days following the strikes. These surges in prices have brought up the US national average price per gallon of regular gasoline: from $2.98 a gallon to approximately $3.63.

Why This Is Not a Normal Oil Price Spike

Many news sites describe this crisis as "the largest disruption to the energy supply since the 1970s oil crises and the largest in the history of the global oil market." The 1973 oil crisis reshaped the US economy, triggered a recession, and led to inflation that took almost a decade to fully slow. The current conditions are not identical, as the US is far less energy-dependent today, but the structural similarity is something to take note of.

How Gas Prices Actually Work

To understand the Iran war's effect on gas prices, we have to understand how gas prices are determined in the first place.

Every gallon of regular gasoline you buy breaks down into roughly four cost components. Crude oilCrude oilUnrefined petroleum extracted from the ground. It is the primary input for gasoline, diesel, jet fuel, and many petrochemicals. Crude oil accounts for approximately 51% of the retail price of a gallon of gasoline.See full definition ↓ is by far the largest and most volatile.

The practical implication: because crude oil is ~51% of the pump price, a large change in crude prices translates fairly directly to a large change at the pump. A general rule of thumb: every $10 increase in the price of a barrel of crude translates to roughly 25 cents added to the retail price of a gallon of gasoline. Brent crude has gone from $73 to roughly $100 in two weeks — a $27 increase. That alone would predict about a 67-cent increase at the pump. The actual observed increase is about 65 cents, which tracks closely.

The US is actually the world's largest oil producer, producing a record 13.6 million barrels per day in 2025. One might expect this to insulate American consumers from foreign oil disruptions, but it does not for this reason: oil is a global commodity priced on a global market.

American refineriesRefineriesIndustrial facilities that process crude oil into usable products — gasoline, diesel, jet fuel, heating oil, and others. Gulf Coast refineries process the majority of US gasoline and purchase crude at Brent-linked prices.See full definition ↓ purchase crude oil at prices linked to Brent Crude, the international benchmark, as we also participate in the sales of oil. When international prices increase, the price for US citizens also rises, as the US sells on the international stage.

How the Strait of Hormuz Actually Works, and What Closing It Does

The Strait of Hormuz connects the Persian Gulf to the Gulf of Oman, and from there, the open ocean. Iran controls the northern shore. Every tanker carrying oil from Kuwait, Iraq, Saudi Arabia, UAE, Qatar, or Bahrain to the outside world must go through it. There is no practical alternative at this time.

There are two partial pipeline alternatives near the Strait. One is the East-West Pipeline, operated by Saudi Arabia, with the capacity to transport 7 million barrels per day. Another pipeline is on UAE's Fujairah Port. These together could theoretically carry a portion of displaced oil. But the problem with these alternatives is that terminal infrastructureTerminal infrastructureThe loading and unloading facilities at the end of pipelines — including pumps, storage tanks, and port equipment. Even if a pipeline has high theoretical capacity, bottlenecks at terminals can limit how much oil actually moves through it.See full definition ↓ at both endpoints limits actual throughput well below their theoretical capacity.

Another alternative is the Red Sea route via the Suez Canal, which is westward of the Strait of Hormuz. This route is also under threat as HouthiHouthiAn Iran-backed armed movement controlling large parts of Yemen. After the US-Israel strikes on Iran, Houthi-controlled Yemen announced it would resume attacks on commercial ships in the Red Sea — closing a key alternative oil route.See full definition ↓-controlled Yemen announced on February 28 that it would resume attacks on commercial ships in the Red Sea, forcing reroute to go all the way around Africa's Cape of Good Hope. This would add weeks of transit times that would increase fuel and insurance costs, further increasing the price of oil.

On March 11, the IEAIEAInternational Energy Agency — a Paris-based intergovernmental organization that coordinates energy policy among major consuming nations. It manages emergency oil reserves that member states can release during major supply disruptions.See full definition ↓ took the unprecedented step of announcing a coordinated release of 400 million barrels of emergency oil from member states' strategic reserves, surpassing the 182 million barrels released during the 2022 Ukraine crisis. But this stockpile does not cover the disrupted oil supply. The US SPRSPRStrategic Petroleum Reserve — the US government's emergency crude oil stockpile, stored in underground salt caverns along the Gulf Coast. As of early 2026, it held approximately 415 million barrels before the war-related release.See full definition ↓ said the stockpile only covers about 15% of the shortage.

What This Actually Costs: At the Pump, in Groceries, and Across the Entire Economy

The national average price of gasoline as of March 14, 2026 is $3.63 a gallon. This is a 65 cent increase from before the war, sitting at $2.98. But this obscures significant regional variation. California drivers, for example, who rely heavily on imported gas, are paying around $5.30 per gallon, with San Francisco reporting some stations at $6.50 a gallon. Louisiana, which has significant domestic oil production, is paying $3.20, well below the national average.

More significantly, every one-cent increase in the cost of a gallon of gasoline increases the total US spending on gas by $1.4 billion over the course of a year. This current 65 cent increase, if sustained, may imply an additional $91 billion in annual gasoline spending.

Goldman Sachs raised its probability of a US recession in 2026 by 5%, to 25%, due to the rising oil costs. Oxford Economics modeled a scenario in which global oil averages were sustained at $140 a barrel for two months. The model showed that these prices were sufficient to push the eurozone, UK, and Japan into economic contractionEconomic contractionA sustained decline in economic activity — typically defined as two consecutive quarters of negative GDP growth, which constitutes a recession. Oxford Economics modeled $140/barrel oil as sufficient to push the eurozone, UK, and Japan into contraction.See full definition ↓ and cause an economic standstill in the US.

What Happens to Prices Depends Entirely on These Variables

The most honest assessment about gas prices is that no one actually knows how prices will end up. Prices are dependent on military decisions, diplomatic developments, and infrastructure conditions that are daily changing. That said, there are identifiable scenarios with different outcomes.

Hormuz shipping status. The single most important factor. If traffic through the strait resumes, even at partial levels, oil prices will drop significantly. But if Iran escalates attacks on commercial vessels, oil prices will continue to rise.

Saudi and UAE pipeline capacity. If the two alternative pipelines improve infrastructure and expand actual capacity to ship oil, this may offset the decrease in shipping capacity from the Hormuz shutdown.

Midterm election timing. The approaching 2026 midterm elections create political incentive for the Trump administration to seek a resolution to improve Republican prospects. This may entail curtailing US involvement in the war.

What This Actually Is

Although it might seem like the increase in gas prices due to the Iran War is a temporary inconvenience caused by the strikes, it shows a long-building structural energy vulnerability: the world's dependence on a single maritimeMaritimeRelating to the sea or ocean-based shipping. A maritime chokepoint is a narrow waterway through which a disproportionate share of the world's sea trade must pass — making it strategically critical and highly vulnerable.See full definition ↓ chokepoint for a fifth of its oil supply.

The US is more insulated than many other economies by virtue of its domestic oil production, but oil is global. The Strait of Hormuz is a shared artery, and every country that draws from it pays when it closes.

The duration of the conflict is the only variable that matters for determining how bad it gets.