Gas Prices Likely to Stay Elevated Even After US-Iran Nuclear Framework Deal]

Drivers hoping that the U.S.-Iran nuclear framework agreement will lead to lower gasoline prices may face a prolonged wait for meaningful relief at the pump.

Energy analysts describe the volatility in fuel costs as “up like a rocket, down like a feather” — meaning gasoline prices surge rapidly with crude oil increases but decline much more slowly when oil prices fall.

This lag occurs partly because gas station operators often absorb losses or make minimal profits during price spikes, as they cannot raise retail prices quickly enough to offset soaring wholesale costs. When crude oil prices subsequently drop, stations are slow to reduce retail prices, seeking to recover earlier losses.

The average price of regular gasoline in the United States rose approximately 50 percent between February 28 — when the U.S. and Israel attacked Iran — and mid-May. Prices have since eased to around $4.04 per gallon, according to AAA.

The initial spike followed restrictions on oil shipments through the Strait of Hormuz, a critical waterway along Iran’s coast.

President Trump recently suggested pausing the federal gasoline tax, which adds 18.4 cents per gallon, though he noted it represents only a small fraction of total costs.

Research indicates consumer behavior also contributes to the slowdown in price declines. When prices rise, shoppers Comparison-shop more actively; when prices fall, they do so less, allowing stations to maintain higher retail rates.

Economists note that while crude oil price drops typically take weeks to translate into lower gasoline prices, the conflict in Iran has complicated supply forecasts, potentially delaying retail fuel cost reductions for months.

Two key factors keep prices elevated: extensive infrastructure damage in the Middle East requiring years to rebuild, and increased shipping costs due to security risks in the Strait of Hormuz.

“Riskier business operations require higher profit margins,” explained energy economist Christopher Knittel of MIT. “Oil and related products have become more dangerous to transport and refine, which supports higher pricing.”

The 2022 Russian invasion of Ukraine previously pushed gasoline prices to current levels. Unlike that episode, today’s effects are more tangible — roughly 20 percent of the world’s oil previously flowed through the Strait of Hormuz.

Energy companies have financial incentives to maintain higher prices, and supply chains are lengthy — crude must be transported, refined, then distributed. Today’s gasoline was produced from expensive crude purchased earlier.

Global oil pricing depends on supply and demand dynamics. While the U.S. is now a net petroleum products exporter, its refineries heavily rely on imported crude for fuel production.

Going forward, elevated energy costs may persist as investors and companies anticipate potential future disruptions in the Strait of Hormuz.

“We’ve opened a Pandora’s box,” said Oxford Economics’ U.S. chief economist Bernard Yaros. “Iran has demonstrated its ability to wield this geopolitical weapon and inflict economic pain.”

Fuel cost increases have deepened economic disparities in the U.S., hitting lower-income households hardest while higher-income families continue spending despite price pressures. With demand remaining strong and supply constrained, significant price drops appear unlikely soon.

“Higher-income households can absorb these shocks longer,” Yaros noted. “Without sufficient demand reduction and with supply still limited, prices won’t fall sharply anytime soon.”

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