What the Iran War Means for Your Gas Prices
Three scenarios to watch, and the one shipping area that determines how much extra you'll pay at the pump
The US and Israel launched major strikes on Iran this weekend, including the assassination of Supreme Leader Khamenei. Iran fired back, hitting US bases across the region. This is shaping up to be the biggest US military action in the Middle East for a decade or so, and we are going to feel it at the gas pump.
Here’s what we know, and what we don’t.
What we know: Oil prices will rise. Markets hate uncertainty, and conflicts like this are highly uncertain.
What we don’t know: How much. The price of gas at the pump depends on one thing more than anything else: the Strait of Hormuz. About 20% of the world’s oil supply passes through that narrow channel. If it stays open, the price impact stays manageable. If it gets disrupted, we could see significant prices increases on gas.
To simplify things, we can think about the impact of this latest conflict in three general scenarios:
Base case: Conflict stays contained, Strait stays open. Expect to pay roughly $0.25–$0.50 more per gallon. Painful but short-lived.
Elevated case: Fighting drags on for weeks, Strait sees disruption. Add $0.50–$1.00 per gallon at the pump. This is where analysts think we’re headed based on what we’ve seen so far.
Escalation case: Strait gets blocked for an extended period. Gas goes up $1.00+ per gallon and stays there for a while.
Here’s a chart of weekly average gas prices since 2020 for some context. The last time gas hit $5.00 was June 2022 driven by Russia’s invasion of Ukraine on top of an already-strained post-pandemic oil supply chain.
We’re unlikely to hit $5.00 from this conflict (touch wood), partly because the US is now the world’s largest oil producer and has capacity to cushion major supply shocks. But prices are going up. The only question is how far.
In terms of how far prices will go up, the Strait of Hormuz is the area to watch. The more impact or if there’s a blockage to the Strait, the higher gas prices will go up.