US gas prices jump nearly 80 cents a gallon in a month as Iran war disrupts oil supply

American drivers are paying nearly 80 cents more per gallon of gasoline than they were a month ago, with diesel hitting even harder. AAA data shows diesel prices have climbed more than $1.30 in the same period and are now sitting just under $5 a gallon nationally. The cause is direct: US-Israel military operations against Iran have disrupted oil flows through the Strait of Hormuz, the narrow waterway through which roughly 20 percent of the world's traded oil passes every day.

Why the Strait of Hormuz matters so much to US fuel prices

The Strait of Hormuz is about 21 miles wide at its narrowest navigable point. It connects the Persian Gulf to the Gulf of Oman and is the only maritime exit for oil exports from Saudi Arabia, Iraq, the UAE, Kuwait, and Iran itself. The US Energy Information Administration estimated in 2023 that approximately 21 million barrels of oil per day moved through the strait. When tanker traffic slows or insurers raise war risk premiums on vessels transiting the route, the cost moves into the price of every barrel refined and sold globally.

Since US-Israel strikes on Iran began, Lloyd's of London war risk insurance rates for tankers operating in the Persian Gulf have increased sharply. Shipping companies have begun rerouting vessels around the Cape of Good Hope when possible, adding roughly two weeks to delivery times and significantly increasing fuel and operating costs per voyage. Those additional costs pass through to refiners, then to the pump.

Diesel is the number that affects everyone, not just drivers

The diesel price increase is the more economically significant figure. Gasoline affects personal transportation costs directly, but diesel is the fuel that moves freight. Trucking companies, rail operators, and agricultural equipment all run on diesel. When diesel prices rise by more than $1.30 in a month, the cost of moving goods across the country goes up, and that cost ends up embedded in the price of groceries, manufacturing inputs, and consumer products at retail.

The American Trucking Associations reported in 2024 that trucks move approximately 72 percent of all freight tonnage in the United States. Fuel typically accounts for 24 to 28 percent of a trucking company's operating costs in normal conditions. At near-$5 diesel, smaller carriers with thin margins face a direct financial squeeze, and larger carriers are already filing fuel surcharge increases with shippers, which will appear in retail prices within four to six weeks.

What this means for Federal Reserve interest rate decisions

The Federal Reserve has been managing a careful path toward interest rate cuts after raising the federal funds rate to a 23-year high of 5.25 to 5.5 percent in 2023. Inflation had been declining steadily through 2024, and markets entering 2026 had priced in two to three rate cuts during the year. A sustained energy price spike disrupts that calculus.

Fed Chair Jerome Powell has repeatedly stated that the Fed will not cut rates until it has sufficient confidence that inflation is moving durably toward the 2 percent target. Energy prices feed directly into the Consumer Price Index both as a direct component and indirectly through transportation and goods costs. If the March and April CPI readings come in elevated due to fuel prices, the Fed's next meeting in May becomes much harder to navigate. Goldman Sachs economists noted in a client note last week that each sustained $10 per barrel increase in oil prices adds approximately 0.3 percentage points to headline CPI over the following two quarters.

Strategic Petroleum Reserve and OPEC options are limited

The Biden administration drew down the Strategic Petroleum Reserve to historic lows in 2022 to combat post-pandemic energy price increases, releasing approximately 180 million barrels between April and November of that year. The Trump administration has been refilling the reserve since early 2025, but current levels remain well below the 638 million barrel capacity the reserve held before 2022. A large release now would have less market impact than the 2022 drawdown did, and it would reduce a stockpile that was already being rebuilt.

OPEC, led in practice by Saudi Arabia, could increase production to offset supply disruptions, but Saudi Arabia has its own relationship with oil price levels to manage. The kingdom's 2024 national budget required an oil price of approximately $96 per barrel to break even on government spending, according to the International Monetary Fund's 2024 Article IV assessment. Flooding the market to bring prices down would work against Saudi Arabia's own fiscal interests, so a coordinated production surge in response to the Iran disruption is unlikely without direct diplomatic pressure from Washington.