Americans are paying a dollar more per gallon of gas than they were four weeks ago. The national average reached $3.98 on Wednesday, according to AAA, closing in on the $4 mark for the first time since August 2022. Before US and Israeli strikes on Iran began on February 28, drivers were filling up at $2.98.
In California, the pump price has already blown past $5.80. Even cheaper states like Louisiana and Oklahoma are above $3.20.
Brent crude surged past $108 a barrel on Thursday after Iran rejected Washington's ceasefire proposal. WTI traded at $94.93, up 4.6% on the day. Both benchmarks have surged more than 40% from pre-war levels near $67.
Diesel is the bigger problem
Gasoline grabs the headlines, but diesel tells a worse story. The fuel that powers trucks, trains and farm equipment has jumped 44% to $5.38 a gallon, according to AAA.
"Can't underscore what a massive jolt this is to the logistics, trucking" sectors, said Patrick De Haan, petroleum analyst at GasBuddy. He estimated that higher fuel costs are draining an extra $500 million a day from the US economy compared to pre-war levels.
Fuel accounts for 50% to 60% of a shipping company's operating costs, according to Patrick Penfield, a supply chain professor at Syracuse University. "When fuel prices start to go up, everything starts to slow down," he said.
The Valero refinery explosion in Port Arthur last week knocked out 435,000 barrels a day of refining capacity and added another squeeze to diesel supply on the Gulf Coast.
The inflation math
Gregory Daco, chief economist at EY-Parthenon, warned that the oil shock could push monthly inflation to 1% in March, the highest single-month reading in four years. On an annual basis, that would drag the rate toward 3%, up from 2.4% in January.
"The longer this lasts, the more significant the shock would be," Daco said.
JPMorgan economists reached similar conclusions, projecting US inflation above 3% within months if crude stays elevated.
The pain is not evenly distributed. Mark Mathews, chief economist at the National Retail Federation, noted that American households spend roughly $2,500 a year on fuel, or about $48 a week. A 33% price spike turns that into $64 a week. For families earning $40,000 or less, that extra $16 is grocery money.
Groceries and flights come next
Food prices have not moved yet, but the clock is ticking. David Ortega, a food economics professor at Michigan State University, said the effects typically lag by four to six weeks. Fresh produce shipped by refrigerated truck will get hit first. Packaged goods follow later.
Diesel-heavy industries are already passing costs along. Shipping surcharges have risen 10% to 30% per container since the conflict started. Airlines, facing jet fuel prices that track crude, are likely to follow.
When do consumers crack?
Penfield pegged $4 a gallon as the psychological threshold. "That's usually when consumers start to pull back," he said. With the national average a penny or two away, that test is coming fast.
De Haan pointed out that seasonal factors are piling on. Several US regions are switching to more expensive summer-blend gasoline, adding roughly 15 cents per gallon on top of the war premium.
"Until we see a meaningful resumption of oil flows through the Strait of Hormuz, upward pressure on fuel prices is likely to persist," De Haan said.
AAA expects the national average to cross $4 in the coming days. Whether it stops there depends on a ceasefire that, as of Thursday, looks further away than ever.