The price spike represents a potential political headache for US President Donald Trump

What: Average gasoline prices in the US rose above $4 per gallon ($1.06 per litre) this week.

Why: The ongoing war in Iran has disrupted a large proportion of global energy supplies and pushed up oil prices.

What next: If disruption continues it could further encourage US exports of refined products.

Average gasoline prices in the US rose above $4 per gallon ($1.06 per litre) this week for the first time since 2022 as the war in Iran continued to drive up the price of oil.

Roughly one-fifth of the world’s oil and gas typically flows through the Strait of Hormuz. However, in the wake of the conflict in Iran, the strait remains effectively closed to maritime traffic. While some regions are more reliant than others on the oil and gas that normally passes through the Strait of Hormuz, and while the US is not at immediate risk of a crude shortage, the interconnected nature of energy markets is nonetheless driving up domestic prices.

As of April 2, Brent crude was trading above $108 per barrel, with West Texas Intermediate (WTI) not far behind at over $107 per barrel. Prices rose again following an address by US President Donald Trump on April 1, in which he said military operations would be intensified in the next 2-3 weeks, dimming hopes for a quicker end to the conflict. And gasoline typically tracks the price of crude, so this is expected to translate into further price increases at the pump.

According to the American Automobile Association (AAA), US gasoline prices averaged $4.01 per gallon on March 31. The last time prices reached this level was in 2022, in the wake of Russia’s invasion of Ukraine. The Washington Post noted this week that at that time, gasoline prices eventually rose above $5 per gallon ($1.32 per litre), adding that this could happen again if the conflict in the Middle East continues.

AAA data show that the average cost of regular gasoline has risen 35% since the end of February. On top of this, the $4 per gallon figure can be seen as crossing a psychological barrier for some of the public, spurring consumers to alter their spending habits. It also puts pressure on Trump politically, especially in the run-up to midterm elections later this year.

“It is the biggest headache for whoever happens to be in power when something like this happens,” Kate Gordon, a former senior adviser in the US Department of Energy (DoE) who is now CEO of nonprofit California Forward, was quoted by the New York Times as saying.

“Usually, a hurricane hits the Gulf [of Mexico] and gas prices go up, and then whoever’s in power gets blamed for it,” Gordon said. She added that Trump was “going to get blamed anyway because he’s in power, but also he made the decision to go to war in Iran”.

Meanwhile KPMG’s chief economist, Diane Swonk, told the Washington Post that while rising fuel costs are one of the most visible signs of the economic impact of the war, other costs could soon go up too as the cost of transporting and manufacturing goods also increases.

“This is only the beginning,” Swonk was quoted as saying.

Consumer sentiment is already reported to be falling, and further increases in the cost of gasoline and other goods could result in a backlash against the Republican Party when elections take place in November, especially if the situation takes time to resolve. And indeed, analysts have already cautioned that even if the Strait of Hormuz reopens soon, it could take months for the oil supply chain to recover.

Record exports

Meanwhile, exports of US refined products hit a record high in March as disruption in the Strait of Hormuz left buyers around the world scrambling to find alternative fuel sources. According to data from vessel-tracking service Kpler that were cited by Reuters this week, US exports of clean petroleum products – which include gasoline, naphtha, diesel and jet fuel – rose to around 3.11mn barrels per day (bpd) in March, up from about 2.5mn bpd in February. This is the highest monthly level in Kpler records going back to 2017, the news service noted.

But while US refiners will benefit from surging demand and prices, this could put further pressure on Trump, if fuel is increasingly seen to be leaving the country as domestic consumers increasingly struggle with high prices.

"Americans are already asking questions about why we can't keep our own oil, and you may see the chorus grow," GasBuddy’s head of petroleum analysis, Patrick De Haan, was quoted by Reuters as saying.

Whether refined products are sold domestically or overseas typically comes down to margins and Reuters cited a Kpler analyst, Matt Smith, as saying that while US fuel prices had surged, they were not yet at demand-destroying levels. As long as the Strait of Hormuz remains essentially shut, supply shortfalls elsewhere in the world will continue to worsen, raising margins and encouraging further exports of refined products from the US, Smith added.

What next?

There are additional and interconnected knock-on effects to all of this. In a separate report also published this week, Reuters reported that oil tanker availability along the US Gulf Coast had dropped in recent weeks amid a surge in demand, and also in freight rates. The news service cited the Signal Group, a shipping analytics platform, as saying net vessel availability along the Gulf Coast had declined 41% over the past month.

As this increases the cost of shipping oil around the world, it also threatens to raise the price of everyday goods for consumers.

Given that to date, Trump has made conflicting statements on the situation in Iran, there is a high degree of uncertainty over what comes next. But the longer the conflict continues, the more pronounced its impact on energy markets will become.