The fuel pump at a Costco outside Dallas read $4.23 a gallon on a recent weekday afternoon, and the line of cars stretched into the parking lot. Three months ago, the same pump charged $2.99. That difference, multiplied across roughly 145 million American households, captures the economic aftershock of a war that shows no sign of winding down.
On February 25, 2026, the United States launched airstrikes against Iranian nuclear and missile facilities, citing what the White House called an imminent threat from Tehran’s weapons program. Iran retaliated with missile volleys targeting U.S. bases in the Gulf region, and the conflict quickly expanded into a naval standoff around the Strait of Hormuz. Seventy-seven days later, neither side has agreed to a ceasefire, and low-level naval skirmishes continue to disrupt one of the world’s most critical oil transit routes.
The economic toll is now impossible to ignore. Brent crude has climbed approximately 45 percent from its pre-war level, rising from near $62 a barrel on February 24 to above $89 in late May, according to Federal Reserve Bank of St. Louis data sourced from the Energy Information Administration. (Because the FRED series carries a short reporting lag, these figures are approximate and reflect the most recent available settlement rather than a real-time quote.) Retail gasoline has followed: the EIA’s weekly national average for regular has jumped roughly 41 percent over the same period, from about $3.00 to north of $4.20. And the Federal Reserve’s response so far has been to hold rates steady and wait.
How fast the shock arrived
What makes this rally different from past oil spikes is that it has not reversed. When drones struck Saudi Aramco’s Abqaiq processing facility in September 2019, Brent surged roughly 15 percent overnight but gave back most of the gain within two weeks as Saudi output recovered. That was a disruption with a clear endpoint. This one is open-ended.
Ongoing naval skirmishes near the Strait of Hormuz, through which roughly 20 percent of the world’s traded oil passes daily according to the EIA, have kept tanker insurance premiums elevated and discouraged some shippers from transiting the chokepoint altogether. The result is not a single dramatic price spike but a grinding, week-over-week escalation that has compounded into something far more painful for consumers.
For a two-car household driving about 25,000 miles a year, the math is blunt: roughly $125 extra per month in fuel costs alone. That money comes directly out of grocery budgets, savings accounts, and weekend plans.
What the Fed said, and what it left out
The Federal Open Market Committee held its target range for the federal funds rate unchanged at its March 18-19 meeting, citing “uncertainty from developments in the Middle East” as a factor clouding the outlook. The accompanying Summary of Economic Projections nudged the median core PCE inflation forecast for 2026 from 2.6 percent in the December round to 2.8 percent, a shift officials characterized as modest. The dot plot showed no appetite for a preemptive rate hike to offset energy costs.
“The committee judges that the risks to the outlook have shifted, but the baseline remains one of gradual disinflation,” Fed Chair Jerome Powell said at the post-meeting press conference on March 19. He added that officials would “need considerably more evidence” before concluding that energy costs were feeding into broader price pressures.
Translation: the Fed is treating this as a relative price shock, not the start of a new inflation cycle, and it is not going to tighten policy to fight it.
Tom Kloza, global head of energy analysis at OPIS, put it more directly in a phone interview in late May. “The Fed is essentially telling drivers: you are on your own for now,” Kloza said. “They are betting this is not a wage-price spiral. That bet is reasonable if the war stays contained, but it is a real gamble if the Strait closes for even a week.”
Markets, for the moment, are backing the Fed’s read. CME FedWatch pricing as of late May 2026 implies less than a 15 percent probability of any rate move before September. Traders are not forcing the central bank’s hand.
Where the Fed’s bet could break down
The calm in rate markets rests on assumptions that have not been stress-tested. The most important is duration. If the conflict drags past June and collides with peak summer driving demand, gasoline inventories could tighten further even without a dramatic new supply disruption. The EIA’s latest Short-Term Energy Outlook already flagged below-average gasoline stocks heading into the season.
Pass-through is the second vulnerability. Diesel and jet fuel prices have risen alongside gasoline, which means freight costs and airfares are climbing too. Those increases ripple into the price of groceries, consumer goods, and services in ways that do not appear immediately in monthly inflation prints but accumulate over quarters. Once businesses start raising prices to protect margins, the “temporary” shock the Fed is banking on starts to look a lot more persistent.
Maria Torres, who manages a family-owned trucking company with 14 rigs based outside Houston, described the pressure in a phone interview in late May. “Our diesel bill in February was about $38,000. Last week it was north of $53,000,” Torres said. “We have already had to add a fuel surcharge to every contract, and two of our retail clients are pushing back. If this keeps up through summer, somebody is going to eat the cost, and it will not be us.”
OPEC+ adds another variable. The cartel has so far resisted calls to accelerate planned production increases. Saudi Arabia and the UAE have signaled they want to see how the conflict evolves before committing additional barrels, a posture that keeps the supply side tight. Without that relief valve, the market is left relying on U.S. shale producers, who have been disciplined about capital spending for years and are unlikely to ramp output fast enough to offset a prolonged Gulf disruption.
The Strategic Petroleum Reserve offers limited cushion. Drawn down heavily during the 2022 energy crisis and only partially refilled since, the SPR held an estimated 370 million barrels as of the most recent Department of Energy disclosure, an approximate figure that reflects reporting lags and ongoing drawdown schedules. That is enough to absorb a short-term emergency but would not meaningfully alter the supply picture over a multi-month conflict. The White House has not announced any new SPR release, and congressional proposals for a temporary federal gas tax suspension have stalled in committee.
What June’s Fed meeting will actually decide
The next inflection point is the June 2026 FOMC meeting and the updated economic projections that come with it. By then, officials will have two more months of inflation data, a clearer picture of summer fuel demand, and possibly a better sense of whether back-channel diplomacy between Washington and Tehran can produce a ceasefire or at least a de-escalation around the Strait.
If core inflation has stayed near the March projection of 2.8 percent and wage growth has not accelerated, the Fed will almost certainly hold again and claim vindication for its patience. But if diesel-driven freight costs have started pulling up food and goods prices, or if a new escalation in the Gulf pushes Brent toward $100, the committee will face a much harder choice: raise rates into a wartime economy, or let inflation run and hope the conflict ends before expectations become unanchored.
For now, the Fed has chosen patience. American drivers, staring at pump prices north of $4.20 with no policy relief on the horizon, are left to absorb the cost on their own and hope the bet pays off.
