Oil prices are down, but these common goods could still cost you more.
Fuel prices have ballooned since the U.S. and Israel started airstrikes against Iran. As of April 7, gasoline was up 40% and diesel up nearly 50% from six weeks earlier, before the strikes began February 28.
That makes it the largest six-week increase in gas prices on record, both in percentage and dollar terms, according to a USA TODAY analysis of weekly data going back to the 1990s. While gas and diesel have not yet hit the levels seen in 2022, when Russia invaded Ukraine, prices started lower and rose faster during the recent spike.
Higher gasoline prices are already costing Americans more at the pump, but the pain spreads further through the economy, pushing prices on anything that needs to be transported, including groceries, which are already strained by years of inflation.
President Donald Trump announced a two-week ceasefire deal on April 7, which included Iran letting ships pass through the Strait of Hormuz, providing some relief to crude oil prices. About 20% of the world’s oil trade is transported through the strait.
But the ceasefire appeared fragile as Iran sealed off the channel once again on April 8, in response to Israel’s continued bombing of Lebanon.
Experts say that even if the war ends today, the impacts will linger, and it will take some time for oil prices to recover fully. On top of that, recovery in prices at the pump lags the recovery in crude prices.
“It would be a mistake for anyone involved to expect oil and gasoline prices to reset to pre-war levels due to the destruction of oil production and refining facilities in the Middle East, not to mention natural gas fields,” said Joe Brusuelas, principal and chief economist at the consulting firm RSM US.
“It will be three to six months before the supply chains could be reconstituted, at best,” Brusuelas said.
Gas prices in the U.S. have risen across all states, from $0.85 in Nebraska to $1.50 in Utah. In California, prices were $5.93 as of April 8. The difference in state prices is due to the composition of the cost. Crude oil makes up roughly half of the cost people pay at the pump; the other half includes refining, distribution and marketing, and taxes, according to the U.S. Energy Information Administration.
The EIA, part of the Department of Energy, estimates gasoline will peak at $4.30 per gallon this month and predicts prices will remain higher than pre-war levels through 2027.
Those predictions were included in a statement on April 7 that incorporated the impact of the Hormuz closure on U.S. energy markets.
EIA Administrator Tristan Abbey noted: “Just as we had never before seen the strait close, we’ve never seen it reopen. What exactly that looks like remains to be seen.”
Diesel prices have also shot up quickly in the past weeks. Because of set contracts, truckers and transportation companies absorb the initial spike for about three months, Brusuelas said. But once contracts expire, those costs will be pushed onto consumers, mainly when it comes to items that are attached to transportation and deliveries, such as groceries.
In the case of food, the impacts can be found from the start to the end of the supply chain. Fuel and energy are required to grow the crops and raise livestock, to package and refrigerate the products, and to transport them.
For every 10% increase in fuel, food prices can go up 2% to 3%, according to John Ross, CEO of Independent Grocers Alliance, an affiliation of 2,600 stores in the US. This piles on top of food inflation.
“The real increases are likely to hit mid-summer as increasing fuel prices flow through the value chain,” Ross predicted in a late March post.
Similarly, for every $10 increase in the price of crude oil, that costs households an extra $450 in energy over the course of one year, according to Brusuelas. Even with the ceasefire announcement, oil is still more than $30 higher compared to the start of the war, meaning $1,350 more in average household energy costs.
“What you're looking at is an effective tax increase,” Brusuelas said.
Americans’ demand for gasoline is what economists call inelastic, which means people tend to drive about the same amount regardless of the price. So, more expensive gas means budgets have to be compensated from other spending.
“Typically, most people only get pay increases once a year. In order to pay for the rising gasoline prices, they have to spend less elsewhere, or they have to run up their credit,” Brusuelas said.
To check how groceries in your area are changing in price, check out our grocery tracker here.