Concepts of a Plan: War, Oil Prices, and the Cost to Americans

As the President’s war wages on, energy prices are climbing—and remain volatile—which could add to inflation for months to come. There’s no denying that oil, energy, and all the sectors they power are profoundly important to the economy, so the domestic and foreign policy implemented to either prop up or set back those sectors profoundly affects everyday life.

Relative to other military conflicts, gas price increases following the start of U.S. attacks on Iran are outpacing the Yemen War in March of 2025 (Figure 1). The rise already closely parallels the increases that followed Russia’s invasion of Ukraine and the Libya conflict in 2011—in far fewer days (yikes).

Gas and Groceries

President Trump vowed to bring gas prices below $2 per gallon and slash energy prices by 50% within the first year of taking office again. But now Trump is telling Americans “if they rise, they rise.”

Nearly four weeks into President Trump’s Iran war, the Strait of Hormuz remains closed and there are rumors that Iran is mining it. About 20% of the world’s oil flow and over 30% of oil transported by ships worldwide move through the strait. Daily oil cargo traffic has ground to a halt, with around 20 oil tankers passing through since the start of the war, compared to the normal average of 100 per day, with hundreds of vessels waiting to pass through. In terms of oil price per barrel, at points the effect of the U.S.-Iran war has outpaced April 2022—following Russia’s invasion of Ukraine—by 17 times.

Predictably, oil prices are soaring but volatile. In response to the war, Brent crude prices increased 30%, passing $100/barrel at one point for the first time since July 2022. As of March 26th, the national average gas price per gallon has increased a dollar from last month and 83 cents from last year.

There’s a lot of warranted anxiety about oil-based energy prices. While President Trump has written off high fuel prices as temporary and necessary for his national security agenda, past shocks suggest a hit to the oil market is often just the first domino.

Oil Shocks Fuel Inflation

As a result of the 1973 Yom Kippur War—when OPEC cut oil exports and an embargo was imposed on the United States—retail gasoline prices surged 40% and inflation rose nearly 9% in one year. The value of missing oil globally was slightly above $5 billion—but the U.S. economy contracted nearly $40 billion.

From 1973 to 1974, vehicle sales dropped nearly 23%. World fertilizer prices tripled, contributing to grocery price inflation of 20%. Airlines faced fuel supply cuts of up to 50%, reducing travel and spurring mass layoffs at aircraft manufacturers.

Today’s macroeconomy differs greatly from the 1970s. But the biggest one-week increase in gas prices since 1983 should remind us of the through-line: economic shocks to oil have historically had an outsized economic impact.

Effects At Home

What begins as a disruption in global oil markets quickly shows up in the everyday economics of states and communities across the United States.

Kansas. The state of Kansas has one of thelowest average regular gas prices in the country, but corn generates over $500 million in exports, produces nearly 15% of U.S. output, and supports nearly 16,000 jobs statewide. The Strait of Hormuz carries up to 30% of global nitrogen fertilizer exports, an essential input for corn production, making a closed strait potentially impactful to one of the state’s critical industries.

California. Over the last month, average gas prices in California have jumped to nearly $5.85, which is more than $1.20 higher than last month. In Los Angeles County alone, 45% of residents rely solely on a car for transportation—up from 33% in 2019. Around 8 million Californians have car loans, the average amount owed has risen 36% since 2012, and over 2.5% of loans are overdue.

Texas. Annually, Texas moves $3.1 trillion worth of freight—the highest value in the country. In 2023, Texas’ trucking industry provided 780,000 jobs—a workforce whose livelihood depends on fuel that has now surged overnight. In the last month, diesel has gone up more than $1.60 per gallon.

If you care about what happens to jobs, where they go, and affordability for American families—then you care about energy. As President Trump’s war unfolds, we’re left paying the price while relying on “concepts of a plan.”

This piece originally appeared on Heather Boushey’s Substack newsletter. Subscribe for more insights.

Heather Boushey

Professor of Practice

Heather Boushey is a professor of practice at the Kleinman Center. Boushey served in the Biden administration as a member of the Council of Economic Advisers and chief economist to the President’s Investing in America cabinet.