WASHINGTON (AP) — Oil prices jumped Tuesday for the second straight day and gas prices moved higher in the United States, underscoring the threat of rising inflation posed by the Iran war.
Coming after nearly five years of elevated costs, even a modest pickup in prices could further sour many Americans on the economy and heighten the affordability concerns that have become a top political issue.
On Tuesday, U.S. oil prices rose more than 5% to $75.22 a barrel in afternoon trading. Gas prices jumped 11 cents to $3.11 a gallon on average nationwide, according to AAA.
A key issue, economists say, is how long the conflict lasts and whether shipping routes, such as the Strait of Hormuz, at the mouth of the Persian Gulf, is closed. About one-fifth of the world's oil and natural gas is shipped through the Strait. Even a war of a few weeks might not push up inflation or weaken the economy very long. But should it last for a few months, inflation would likely worsen — perhaps topping 3% for the first time since early 2024.
Here are some ways the war could worsen the economy.
Inflation has lingered even as gas prices have fallen
While some measures of inflation have cooled in recent months, the Federal Reserve’s preferred measure has been stuck at about 3% for roughly a year. That is above the central bank’s 2% target, and has occurred even as gas prices fell steadily in 2025.
Should gas prices rise significantly, air fares could also increase as airlines face bigger fuel costs. Shipping would also become more expensive, which could add to grocery prices. Oil is also used in chemicals and plastics and in many industrial processes, so higher prices could spread.
Natural gas prices have also risen sharply, after a liquid natural gas plant was shut down in Qatar. That could raise electricity prices in the U.S. Natural gas has already gotten 10% more expensive in the past year, thanks in part to spiking energy usage by data centers powering AI.
Still, economists noted that the U.S. economy is not as oil-dependent as it has been in the past, with most Americans now working in services, rather than manufacturing.
And other factors may help keep oil price increases relatively limited. Rory Johnston, founder of Commodity Context, an oil analytics firm, pointed out that oil inventories were quite high before the conflict, which helped keep prices in check. That’s in sharp contrast to the winter of 2022, he said, when post-COVID supply chain problems had already pushed up oil costs even before Russia’s invasion of Ukraine caused a much bigger spike.
President Donald Trump on Tuesday acknowledged that oil and gas prices have risen as the U.S. remains engaged in the ongoing Middle East conflict, but he argued that prices would drop once the war ends.
“We have a little high oil prices for a little while, but as soon as this ends, those prices are going to drop, I believe, lower than even before,” Trump told reporters in the Oval Office.
For every $10 increase in the price of a barrel of oil, economists estimate that U.S. gas prices would rise about 25 cents. Should prices top $100 a barrel, gas would move closer to $3.50 a gallon or higher.
Businesses may pull back amid uncertainty
If the Iran war drags on for months, it could also torpedo business confidence, which could lead companies to invest and hire less, said Kathy Bostjancic, chief economist at Nationwide Financial.
“When there is an injection of new uncertainty into the business environment ... that's a hit to confidence," she said.
The result could be similar to the impact of Trump's tariffs, which did not raise prices as much as many economists feared, but did appear to weigh on job gains. Hiring in 2025 was the weakest, outside of a recession, since 2002.
Consumers sour further on economy
Even without a big inflation spike, a major risk for Trump is that Americans sour on his economic leadership.
According to surveys, Americans already have a gloomy outlook on the economy, largely because of the lingering effects of the price spikes of the past five years. Trump's attempts to portray the U.S. as in a “golden age” have had little impact on those attitudes.
A protracted conflict in Iran that raised gas prices would likely make it worse, said Alex Jacquez, chief of policy and advocacy at the Groundwork Collaborative and an economic adviser to the Biden White House.
“People generally don’t think that President Trump is focused on the things that they are focused on,” Jacquez added, “and what they want him to be focused on is the price of groceries. What they think he’s focused on are things like tariffs and foreign policy.”
Interest rates could also rise
With inflation potentially headed higher, the Federal Reserve could further delay any additional interest rate cuts. The Fed cut its key rate three times last year, but kept them unchanged in January, despite Trump's repeated demands to cut them further. When the Fed reduces its rate, over time it can lower consumer borrowing costs for things like mortgages and auto loans.
On Tuesday, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said that before the Iran war he had supported at least one interest rate cut this year as inflation slowly cooled. But now he isn’t so sure.
“With the geopolitical events that we talked about, I just need to see,” he said at the Bloomberg Invest conference in New York City, referring to the U.S. and Israeli attacks on Iran. “We need to get a lot more data in.” Kashkari is one of 12 voting members of the Fed’s rate-setting committee.
Financial markets have forecast two rate cuts this year, according to futures prices, and Trump has loudly demanded many more reductions. But the odds of those two cuts occurring this year have fallen since the Iran war began.
