The average cost of a gallon of regular gasoline in the US has jumped nearly 27 cents in a week, to $3.25, as the conflict between the US, Israel, and Iran threatens to disrupt the global oil supply. According to a report by The Guardian, this fear has entered the White House, where officials are under immense pressure to keep prices low as the conflict continues.
US drivers are largely insulated from higher oil prices caused by Middle East turmoil, but only to a point. The US has become the world's largest crude oil producer, which has subsided some of the fears of panic at gas stations. However, American consumers are not completely immune to the global energy shock, and the supply cushion has its limits.
The US is forecast to pump a near-record 13.6m barrels of crude oil per day in 2026, according to the US Energy Information Administration (EIA). This high production level means that US consumers may be partially insulated from energy shocks, though they're not completely immune. As Patrick De Haan, head of petroleum analysis at GasBuddy, notes, retail prices could gain another 20 to 25 cents a gallon, which could push the nationwide average to $3.40.
Oil Market Dynamics
Oil is a globally traded market, and prices are influenced by global events. After the US-Israel strikes, Iran effectively shut down traffic through the Strait of Hormuz, a key shipping area for energy to Europe and Asia. This has led to concerns about the global oil supply and has contributed to the recent price hikes.
Joseph Brusuelas, chief economist for RSM, a middle-market assurance, tax and consulting firm, said the resilience of the US economy suggests US oil prices need to hit $125 a barrel, or $4.25 a gallon for gasoline, to inflict economic damage. However, even at that level, the US economy is a dynamic and resilient $30tn beast that can absorb some pain from oil prices and volatility across the energy complex.
If US oil prices rise to $125 a barrel, US gross domestic product (GDP) could drop at least 0.8% and consumer inflation could go up to 4%, according to Brusuelas. Every $10 increase in the price of a barrel of oil can lead to a 0.1% drop in overall growth and 0.2% increase in price levels.
Expert Analysis
Rob Thummel, senior portfolio manager at Tortoise Capital, notes that shale oil producers would need to see prices stay above $70 a barrel for a while before considering upping production. However, if the strait of Hormuz remains closed, the US could step up output to meet demand, and it would likely head to Europe, which could lower global oil prices.
Recent history provides some comfort that the US could respond to oil shocks, as seen after Russia invaded Ukraine. The US has been a net energy exporter since 2019 and could expand oil production to meet demand. As the conflict between the US, Israel, and Iran continues, the global oil market remains volatile, and the US will likely play a crucial role in shaping the market's dynamics.
