Experts say Americans will soon feel the “oil tax” of war in the Middle East, which could lead to a pullback in consumer spending.
Since the conflict began disrupting shipping through the Strait of Hormuz, a key transportation corridor that typically handles one-fifth of the world’s oil, crude oil prices have soared and so have gas prices.
With higher fuel costs weighing on consumers’ budgets, companies and Wall Street strategists warn that consumers, especially low-income Americans, may become more desperate.
“(A) simple rule of thumb is higher oil prices … $20 per barrel is approximately (a) $150 billion tax on annual consumer spending,” Raymond James strategist Tyus McCourt wrote in a note to clients.
Read more: How fuel prices are hitting your wallet, from gas to groceries
US national average gas prices are already up more than $0.60 from a month ago, and higher prices may be the new normal, with crude oil futures (CL=F) hovering around $100 a barrel. Industry analysts estimate that every $10 increase in the price of crude oil translates into an increase of approximately $0.25 per gallon at the pump.
Uncertainty weighed on Americans’ views on the overall economy in early March, according to a University of Michigan consumer sentiment reading released Friday, which fell to its lowest level so far this year.
“Any time you have higher gas prices, it will affect both supply and demand because consumers will be more cautious in their discretionary spending,” Forrester Research retail analyst Suchita Kodali told Yahoo Finance.
Strategists say that while all consumers are likely to be affected by higher energy prices, lower-income consumers may find it more difficult to absorb higher costs due to affordability issues.
Persistently high oil prices could begin to “expand the K-shaped dynamic in the economy,” or the tax divide between low- and high-income households, Evercore ISI Vice President Krishna Guha wrote in a client note.
Read more: What is a ‘K-shaped’ economy, and what causes the divide?
The oil shock comes as the wage growth gap between low-income and high-income families is at its widest in 10 years, according to the Bank of America Institute. In February, wages for top earners rose 4.2% year over year, while wages for low earners rose just 0.6%.
Going into 2026, economists were optimistic that a big tax refund from President Trump’s One Big Beautiful Bill (OBBBA) could boost consumer spending and help close the gap between high and low income earners.
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