A week ago, President Donald Trump stood up to Congress and called cheap gas. Prices recently fell to an average of $2.92 per gallon nationwide, the lowest since 2020, according to AAA (1). Hours before the first airstrike on a Texas energy rally, the mood was triumphant.
Seven days later, gas topped $3.40 a gallon, according to AAA — the highest national average since September 2024. After the US and Israel launched attacks on Iran, WTI crude oil rose more than 35% in a week to close above $90 a barrel – its biggest weekly gain (1289) in the history of the futures contract.
And the president’s response? He told Reuters he was not concerned about it.
“They’re going to go down pretty quickly when this is over, and if they’re going to go up, they’re going to go up, but it’s very important that gas prices go up a little bit,” Trump said in an exclusive interview Thursday. Trump said in a special interview on Thursday (3).
Behind closed doors, the tone is clearly different. White House chief of staff Susie Wells reportedly warned in internal meetings that failure to act on the rate hike would be “disastrous” for Republicans heading into the November midterms. According to White House Press Secretary Carolyn Leavitt, Energy Secretary Chris Wright and Wells are both discussing options with oil executives.
Trump said he was not looking to tap into strategic oil reserves, the same emergency stockpile he criticized President Biden for drawing, and expressed confidence that the Strait of Hormuz, through which nearly a fifth of the world’s oil passes each day, would remain open.
But the strait is already in crisis. Traffic is almost at a standstill. Iraq has cut production by 1.5 million barrels per day. Kuwait began cutting output after running out of storage space. The Minister of Energy of Qatar has warned that if the oil tankers do not pass, the price of oil will reach 150 dollars.
JPMorgan estimates that production cuts could approach 6 million barrels per day by the end of next week if the bottleneck remains.
In other words, it could be a lot more than a gas price hike “something.”
Here’s what most people don’t think about when they think about rising oil prices: By the time a barrel of crude oil is refined and burned in your car, it’s already gone into almost everything in your life.
Fuel doesn’t just power your commute. It powers the trucks that deliver your groceries, the ships that transport your electronics, the tractors that plow the fields where your food is grown, and the factories that make the plastics, chemicals, and materials that go into virtually every product you buy. Because almost everything in the economy needs to be transported, higher fuel costs are reflected in consumer prices across the board.
how much? A Federal Reserve Bank of Dallas analysis published last year modeled this exact scenario — a closure of the Strait of Hormuz pushing WTI crude oil to $100 a barrel — and found that it could add about 1.3 percentage points on top of headline inflation, with core inflation rising about 3 percent. The effects fade over months as the one-time price shock works its way through the system, but in the near term, the effects are real (4).
Wall Street estimates tell a similar story. Goldman Sachs said that a sustained 10% increase in oil prices would increase headline CPI by about 0.28 percentage points and core CPI by just 0.04, and that in scenarios where oil remains high for several months, headline inflation could temporarily rise to 3% for the year. Apollo Global’s Thurston Slough estimated that a $50 per barrel hike would add a full percentage point to second-quarter inflation (5). Since last Saturday, oil has increased by 28 dollars per barrel.
US inflation cooled to 2.4% in January, its lowest reading since May – and the Federal Reserve was finally in sight of its 2% target. Even a short-term bump to 3% or above would mark a significant setback, putting additional pressure on an already stressed consumer and likely delaying the rate cuts that many Americans are counting on.
It is worth looking closely at the movement of food prices. Agriculture is heavily dependent on diesel, petroleum-derived fertilizers, and long-haul freight—all of which are directly tied to crude prices. Research from the Federal Reserve has consistently found that oil shocks affect core inflation even more than reliably raising food prices.
The inflation picture was already far more critical than the White House had anticipated. Now it is being stress-tested by a shooting war in the world’s most important oil-producing region.
To be fair, most economists urge caution, not panic. Many note that oil booms fueled by Middle East conflicts have historically proven temporary, and the United States is producing more of its own energy than in previous crises.
Morningstar DBRS Ravikanth Roy, co-director of energy and natural resources ratings, said in a statement quoted by CNBC that it is unclear whether the price hike will continue as the conflict is still in its early stages (6).
Not everyone is sounding the alarm. RSM Chief Economist Joseph Brossulas argued that the US economy is far less vulnerable to oil shocks than it was a generation ago. “In today’s U.S. economy, high oil prices do not present the same significant downside risk to high levels of economic growth or inflation as they did half a century ago,” Brusolas told CNBC.
However, the duration is very important. Trump has indicated a four-to-five-week timeline for the military campaign, a prediction that political and military analysts have questioned, noting that the administration has not clearly stated its end goal. If the conflict continues, earlier inflation forecasts may go out the window.
Traders are now in near consensus that the Federal Reserve will keep interest rates steady at its March meeting, and bets that rates won’t stay until June have strengthened as officials weigh higher energy costs against slower growth.
New York Fed President John Williams said this week that the dispute could affect the near-term inflation outlook. “We’ll see how long it lasts and how long it lasts, but it will affect overall inflation,” Williams told reporters (7). Minneapolis Fed President Neil Kashkari said he was no longer so confident in his earlier call for a rate cut this year, noting that “with geopolitical events, we need to get more data in” (8).
In plain English: Don’t count on a rate cut to ease your mortgage or car payment anytime soon.
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You can’t tell what’s going on in the Strait of Hormuz. But you can get ahead of what’s coming for your wallet.
Start with your budget. Gas prices are up nearly 50 cents a gallon in a week. For a family that drives two cars, that works out to $40 to $60 a month just in fuel—and that’s before indirect costs are factored in. Food prices are lagging fuel by two to three months as higher diesel and freight costs work their way through the supply chain, so what you pay at the pump today will show up at the checkout counter this summer.
If you are investing in the market, resist the urge to sell on volatility. Oil-driven sales are brisk but short-lived. The S&P 500 fell about 25% after Russia invaded Ukraine in early 2022 and bounced back within months. The biggest risk is closing in at a loss by selling low and missing out on returns.
For the cash you keep on the side, high-yield savings accounts still pay above 4% APY — meaning your emergency fund can at least partially keep up with rising rates. And if you’re looking for a direct inflation hedge, Treasury Inflation Protected Securities (TIPS) and Series I savings bonds both adjust to the Consumer Price Index. Neither will make you rich, but they are designed for this type of environment.
The timing of the price cut is also important here. If inflation falls back to 3%, the Fed is unlikely to cut rates anytime soon — meaning mortgage rates, auto loan rates, and credit card rates remain high. If you’re waiting for the cost of getting a cheap loan before making a big purchase, that time frame has become too long.
President Trump may not be worried about gas prices. But if you’re one of the millions of Americans who’s already cut costs of living, you probably should be—and not just because it costs to fill your tank.
Fuel goes into almost everything you buy—from the diesel that transports your groceries to the petroleum-derived fertilizer that’s baked into every online order that adds to shipping costs. When crude oil rises 35% in a week, these costs do not stay at the pump. They go out, and they take months to fully arrive.
The conflict may be brief. Trump says four to five weeks. But even a brief pause has already erased a year’s worth of gains in gas prices and put the Fed’s rate-cutting schedule at risk. The Americans who come through this way in the best shape won’t be the ones who predicted what was going to happen—they’ll be the ones who didn’t wait to find out.
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AAA (1); CNBC (2, 6); Reuters (3); Federal Reserve Bank of Dallas (4); Yahoo Finance (5); Bloomberg (7, 8)
This article provides information only and should not be used as advice. It is provided without warranty of any kind.
