The consumer costs of the Iran war

Newsweek -   The Iran war—and the surge in fuel prices it has resulted in—has sparked warnings from economists and think tanks that the fallout could effectively be acting as a new, long-term tax on American households.

In addition to gas, officials have expressed fears that the now nearly three-month conflict could push up inflation across the economy and limit the hopes of interest rates dropping in 2026, fears that were underscored by the latest consumer price index (CPI) from the Department of Labor.

The report found that inflation had overtaken wage growth for the first time since 2023, eliminating the benefit of any pay increases Americans enjoyed over the past year.

And according to the economist Justin Wolfers, a professor at the University of Michigan’s Gerald R. Ford School of Public Policy, Americans may be dealing with this “Iran tax” for “months and probably years.”

The primary price impact from the war is in energy. Oil prices have risen significantly since Tehran began preventing ships from traveling through the Hormuz Strait—through which roughly 20 percent of global supply typically moves—and this has in turn pushed up domestic costs at the pump.

According to the AAA, the national average price for a gallon of regular unleaded has risen from under $3 before the conflict began to $4.49, though this dipped in recent days on hopes of a breakthrough in negotiations.

...Researchers at Brown University’s Watson School of International and Public Affairs estimate that consumers have paid close to $48 billion in additional fuel costs since the conflict began on February 28. This is mostly in gasoline, but also diesel, the price of which has likewise risen over 50 percent, together resulting in an average burden of $364.40 per U.S. household.

And according to Roger A. Pielke Jr., a political scientist and senior fellow at the American Enterprise Institute (AEI), the combined impacts on gas and other products like jet fuel and fertilizer means households are paying roughly $410 extra each month on average.