By Bonface Mulyungi
The average price of gas at the pump has topped $4 in the US for the first time in nearly four years as the Iran war continues to push up fuel prices.
The national average for a gallon of regular gasoline is now $4.02, more than a dollar higher than when the war began, according to the AAA motoring organisation. The price of diesel is also around $1.70 higher.
The effective closure of the Strait of Hormuz, a key waterway, for the past month has meant the production and transportation of energy across the Middle East has slowed or stopped entirely.
The cost of crude oil, a vital ingredient in gas and diesel, has surged as a result.
US President Donald Trump made lower prices at the pump a key part of his election platform during the 2024 presidential campaign.
The president has described the current rise as a temporary disruption that should have little major impact.
But analysts are increasingly warning that high gas prices could cause households to dial back spending, increasing the risks of economic damage.
“If the conflict is contained soon, the hit to confidence may be temporary,” analysts at Moody’s Ratings Agency wrote in a recent note. “But a prolonged crisis could prompt more precautionary saving and further discretionary spending cuts.”
Before the conflict began on 28 February, gas in the US averaged about $2.98 a gallon.
Diesel, which is key to goods transport, was about $3.76. The average price is now $5.45, a rise expected to feed into higher food costs.
In addition to high crude oil prices, last week the AAA also pointed to high demand for gas from spring break season as another factor in rising pump prices.
The $4.02 price is the highest since August 2022. As it is a national average, drivers in some states will have already been paying more than $4 a gallon.
Average prices are still below the record highs of $5.01 for gas and $5.81 for diesel, set in June 2022 in the aftermath of Russia’s invasion of Ukraine.
But the increase in prices could have a bigger impact on household budgets this time, warned Christopher Hodge, chief economist for the US at Natixis CIB.
“Consumers are in a much weaker position now than they were in 2022,” he said, noting that job and wage growth were stronger then and many households had built up savings during the pandemic.
Oil prices are on track for the biggest one-month rise on record, with the global Brent crude benchmark trading near $120 a barrel. The US benchmark, West Texas Intermediate, is also above $100 a barrel for the first time since 2022.
If oil rises to $140 a barrel for a prolonged period, it could trigger an economic downturn, Matthew Martin, senior US economist at Oxford Economics, wrote in a report last week.
“The duration of the war is the key variable: the longer it persists, the more likely something breaks,” he said.
Higher wholesale energy prices often show up first at the fuel pump and this is being seen, not just in the US but around the world.
In the UK, average petrol prices have risen by 14% and diesel by 27% since the war began.
Some countries, such as Sri Lanka and Bangladesh, have introduced fuel rationing, and last week Slovenia became the first EU country to do so.
In Australia, fuel sales tax has been halved for three months to help motorists with high fuel prices, while two states are offering temporary free public transport to incentivise people not to drive.
