The Iran war has sent fuel prices surging nationwide — and those higher prices are beginning to impose significant costs on the American economy, according to a new analysis from researchers at Brown University.
The war has cost the U.S. economy roughly $17 billion solely by increasing prices for gasoline and diesel fuel, the estimate finds. These higher prices have cost each household about $129 on average, researchers say.
“If you think about an individual paying $1 or $1.50 more for gasoline, that’s often just a nuisance,” Jeff Colgan, an author of the analysis and a political science professor at Brown University, told me.
“But as a country, we consume 370 million gallons of gasoline per day. So when you add that all up, this is more than just a nuisance for the country. This is a major cost,” he said.
The team has published a new website, the Iran War Energy Cost Tracker, to share their analysis and monitor the war’s rising costs over time.
“Of course, the most horrible costs are the casualties, the deaths,” Colgan said. “And there’s been discussion in the media of the fiscal cost and the new Department of Defense funding. But there is this other cost, and it’s coming right out of your pocket,” he said.
Many of the higher costs in their analysis come from surging diesel prices, which have risen nearly 48% since the war began. Although Americans consume almost twice as much gasoline as diesel every day — diesel is mostly used by things like trucks and trains in the U.S. — the cost of diesel has risen so significantly that it drives nearly half of the total price shock.
The analysis finds that Americans have paid an additional $8.8 billion for gasoline and an extra $8 billion for diesel fuel that they would not have had to spend otherwise. Those diesel costs will eventually work their way into prices paid by consumers by increasing shipping costs or packaging costs.
The higher costs haven’t been borne evenly across the country. Although much of the attention has focused on states where nominal prices are highest — such as California, where a gallon of gasoline now costs $5.93 — those states have not seen the sharpest increases since bombing started, Colgan said.
Utah has seen its gas prices rise by more than $1.50 per gallon since the war began, the tracker finds. Arizona and Kentucky have seen prices rise by more than $1.40.
“Utah used to have very cheap gasoline compared to the rest of the nation, and now it doesn’t,” he said.
The tracker doesn’t look at other commodities that have risen in price due to the Iran war and the closure of the Strait of Hormuz — such as jet fuel, naphtha, fertilizer, and petrochemical inputs — but Colgan said they want to do so over time.
“We wanted to show that what we’re seeing right now is a delta — an increase in what [the gas price] would have been if we hadn’t made this decision to go to war,” Colgan said.
To estimate where gas and diesel prices would be today had the war never happened, Colgan worked with John Perdue, a Brown student, to look at how gasoline and diesel prices have changed over the past five years to account for normal fluctuations and seasonal variation. They compared those average price increases both to average gas and diesel prices in February and to the price level on February 28, when bombing began.
“The truth is it doesn’t much matter” which of the two methods you use to calculate the counterfactual, Colgan said. (Viewers to the website can look at both estimates.) “The numbers are big either way.”
The costs will continue rising, even if the ceasefire that the United States and Iran announced earlier this week holds.
As long as Iran keeps the Strait of Hormuz closed, oil prices will keep rising as a large share of the world’s fossil fuels remain stuck behind a blockade. Even after the Strait is reopened, oil prices could remain elevated for months as the system accommodates the permanently lost supply, the analyst Rory Johnston told me on Heatmap’s podcast Shift Key on Thursday.
“The economic consequences of the decision the U.S. government has made will continue for Americans,” Colgan agreed. He contrasted the war’s $17 billion cost in gasoline and diesel prices with billions that the Department of Government Efficiency has claimed to save taxpayers — or the $6 billion annual budget for the President’s Emergency Plan for AIDS Relief (PEPFAR), the anti-HIV/AIDS program that Trump zeroed out last year.
“What else could we have spent that $16.7 billion on?” he asked. “Turns out there’s a lot.”
