How the Iran War Affects Gas Prices: Supply Disruption, Refining Costs, and What to Expect

Overview

When US and Israeli forces struck Iranian territory on February 28, 2026, gas prices began moving before the smoke cleared. This is not because gasoline supply was immediately disrupted — it was not. The connection between military strikes in the Middle East and the price you pay at your local gas station runs through a chain of financial instruments, insurance markets, refinery economics, and distribution logistics that collectively amplify every signal of potential supply disruption.

This article traces that chain from beginning to end. It explains why crude oil futures spiked within minutes of strike confirmation, how tanker insurance repricing adds real costs before any physical blockade occurs, why refinery crack spreads widen during conflict uncertainty, and what the regional price differences across the United States actually reflect. It also provides conditional forecasts for three escalation scenarios — contained strikes, moderate escalation with Strait harassment, and severe escalation with Strait closure — so that consumers, businesses, and policymakers can plan around plausible price ranges rather than headlines.

The core mechanism is straightforward: Iran sits at the throat of global oil transit. Roughly 20% of the world's daily oil supply passes through the Strait of Hormuz, which Iran can threaten with mines, fast-attack boats, and coastal anti-ship missiles. When that threat becomes active, every barrel of oil on the planet gets repriced, and gasoline follows within days.

What We Know

The following facts are confirmed as of February 28, 2026, drawn from EIA data, AAA fuel price tracking, and commodity exchange reporting.

• Crude oil price movement: Brent crude futures surged from approximately $82/barrel pre-strike to over $95/barrel within the first six hours of confirmed military operations. WTI crude followed, jumping from $78 to $91. These moves represent a 16% and 17% increase respectively, consistent with historical spikes during Gulf conflict events. EIA gasoline and diesel fuel update
• Retail gas price response: AAA national average regular unleaded rose from $3.42/gallon (February 27) to approximately $3.78-3.97/gallon within 48 hours of the first strikes. This $0.35-0.55 increase reflects wholesale price adjustments propagating through the distribution chain. Prices at individual stations vary based on local competition, state taxes, and distributor inventory levels. AAA gas prices
• Refinery margins: The 3-2-1 crack spread (a standard refinery profitability metric measuring the margin from refining three barrels of crude into two barrels of gasoline and one barrel of diesel) widened from approximately $25/barrel to $34/barrel, reflecting the market's expectation that crude supply constraints will tighten refinery input availability. EIA refiner margins
• Tanker insurance costs: War-risk premiums for tankers transiting the Persian Gulf have spiked 10-20x above normal levels, adding an estimated $1-3 per barrel in effective transportation costs. The London Joint War Committee has not yet formally reclassified the Gulf as a listed area, but individual underwriters are already pricing at elevated levels. Lloyd's List
• Distributor behavior: Wholesale fuel distributors in the Northeast and West Coast markets have begun accelerating purchase orders, securing supply at current prices before anticipated further increases. This demand-pull behavior can itself accelerate retail price increases even without physical supply disruption. EIA weekly petroleum status report

Analysis

The transmission chain: from strikes to the pump

Gas prices do not move because of gas supply. They move because of oil futures, and oil futures move on probability, not certainty. The moment confirmed strike reports reached trading desks, algorithmic and human traders began repricing Brent crude front-month contracts based on the estimated probability of three downstream events: Iranian retaliation against oil infrastructure in the Gulf, disruption of Strait of Hormuz transit, and removal of Iranian exports (approximately 1.5 million barrels per day) from global supply. Each of these carries a different probability and a different price impact, and traders price in a weighted composite.

From crude futures, the signal propagates through wholesale gasoline markets (tracked by the NYMEX RBOB contract), then to rack prices (the price at which distributors buy from refineries), then to the retail level. This chain typically takes 3-7 days to fully transmit, which is why gas station prices continue rising for days after a crude oil spike. The reverse is also true — if crude prices stabilize or fall, retail prices take days to adjust downward, a phenomenon known as the "rockets and feathers" asymmetry in fuel pricing.

Why refinery economics amplify the shock

Refineries add a second layer of price pressure beyond crude costs. When conflict uncertainty rises, refineries that process Middle Eastern sour crude (a heavier, higher-sulfur grade that Iran, Iraq, and Saudi Arabia produce) face potential feedstock disruption. US Gulf Coast refineries are configured specifically for sour crude and cannot easily switch to light sweet alternatives without yield penalties. This configuration dependency means that even refineries with adequate crude inventory begin raising wholesale gasoline prices to protect margins against anticipated input cost increases.

Additionally, refinery maintenance schedules compound the timing. February and March are the beginning of spring turnaround season, when refineries undergo planned maintenance before switching to summer-grade gasoline blends. With several major Gulf Coast refineries already partially offline for maintenance, the effective spare refining capacity that could absorb crude supply volatility is reduced. The EIA estimates that approximately 1.2 million barrels per day of US refining capacity was offline for maintenance at the time strikes began.

Regional price variation across the United States

Not all states feel the price impact equally. West Coast consumers face the highest premiums because California, Oregon, and Washington rely on a limited number of refineries with constrained pipeline access to the rest of the country. California's unique gasoline blend requirements further restrict the ability to import fuel from other regions when local supply tightens. AAA data shows California average prices already exceeding $4.80/gallon, with some urban stations above $5.20.

Northeast states from Maine to Virginia face the second-highest exposure because the region imports a significant share of its refined product via waterborne delivery from Gulf Coast refineries and European sources. When tanker insurance costs rise and shipping routes face uncertainty, delivered fuel costs to East Coast terminals increase disproportionately.

Gulf Coast and Midwest states see comparatively smaller increases because of proximity to domestic production and refining. Texas, Louisiana, and Oklahoma consumers benefit from short pipeline distances between refineries and retail outlets, and the Permian Basin and Eagle Ford shale production provide a domestic crude supply buffer. However, even these regions are not immune — when global crude benchmarks rise, all domestic crude production reprices accordingly.

Three price scenarios based on escalation level

Scenario 1: Contained strikes, no Strait disruption. If military operations remain limited to the strikes already conducted and Iran does not retaliate against oil infrastructure or Strait transit, crude prices are likely to settle in the $88-95/barrel range within 1-2 weeks as the initial risk premium fades. National average gas prices would stabilize around $3.80-4.20/gallon, representing a $0.40-0.80 increase from pre-conflict levels that gradually erodes over 4-8 weeks.

Scenario 2: Moderate escalation with Strait harassment. If Iran responds with IRGC fast-boat harassment of commercial shipping, drone incidents in the Gulf of Oman, or limited attacks on non-US-flagged vessels (following the 2019 pattern), crude prices could sustain above $100-110/barrel for weeks to months. Tanker insurance costs would add $2-4/barrel in effective transport premiums. National average gas prices in this scenario could reach $4.50-5.00/gallon and remain elevated for 2-4 months.

Scenario 3: Severe escalation with Strait closure or infrastructure attacks. If Iran attempts to mine the Strait of Hormuz, launches missile strikes on Saudi or UAE oil facilities (echoing the 2019 Abqaiq pattern at larger scale), or successfully disrupts tanker transit, crude prices could spike to $120-150/barrel or higher. Gas prices in this scenario could reach $5.50-6.50/gallon nationally, with California and the Northeast potentially exceeding $7.00. Strategic Petroleum Reserve releases would moderate this somewhat, but the SPR's drawdown rate (approximately 4.4 million barrels/day maximum) cannot fully offset the loss of 17-20 million barrels/day that the Strait carries.

What's Next

Several specific indicators will determine which price scenario unfolds over the coming days and weeks.

• NYMEX RBOB gasoline futures: Track the front-month RBOB contract for early signals of wholesale price direction. A sustained move above $3.00/gallon on RBOB (currently around $2.85) would signal that the market expects prolonged supply stress and retail prices above $4.50 nationally. EIA gasoline and diesel fuel update
• EIA Weekly Petroleum Status Report: The next report (released Wednesdays) will show the first post-strike data on US crude and gasoline inventories. A drawdown exceeding 5 million barrels in crude stocks or 3 million barrels in gasoline stocks would indicate that distributors are pulling inventory forward, accelerating the price increase. EIA weekly petroleum status report
• SPR release announcements: A White House or Department of Energy announcement of Strategic Petroleum Reserve releases would signal that the administration expects sustained supply disruption and is intervening to cap prices. Historically, SPR releases moderate prices by $5-10/barrel in the near term. DOE Strategic Petroleum Reserve
• OPEC+ emergency meeting signals: Watch for statements from Saudi Energy Minister Prince Abdulaziz bin Salman or UAE Energy Minister Suhail al-Mazrouei indicating willingness to increase production. Any OPEC+ emergency production increase above 500,000 barrels/day would meaningfully cushion prices. OPEC
• Iran retaliation targeting: The single most important variable is whether Iran retaliates against oil infrastructure rather than military targets. Strikes on Saudi Aramco facilities, UAE loading terminals, or tankers in the Strait would immediately trigger Scenario 2 or 3 pricing. AP Iran coverage

Why It Matters

Gas prices function as the most immediate and universally felt economic transmission belt between geopolitical conflict and household budgets. The average American household consumes approximately 1,100 gallons of gasoline per year. A sustained $1.00/gallon increase translates to $1,100 in additional annual fuel costs — a burden that falls disproportionately on lower-income households, rural communities, and workers with long commutes who cannot easily reduce driving.

Beyond direct fuel costs, gasoline price increases propagate through the entire consumer economy. Trucking and logistics costs rise, which increases the delivered price of food, consumer goods, and construction materials. Airlines raise fuel surcharges. Agricultural input costs climb because diesel, fertilizer (a petroleum derivative), and transportation are all affected simultaneously. The Federal Reserve's preferred inflation metric (PCE) is directly influenced by energy prices, meaning a sustained gas price increase complicates monetary policy at a moment when the Fed was beginning to consider rate cuts.

For the political dimension, gas prices are among the most visible and emotionally salient economic indicators for voters. Every major polling firm tracks gas price sentiment, and historical analysis shows a strong correlation between rising pump prices and declining presidential approval ratings. The timing of this conflict — with midterm elections approaching in November 2026 — means that gas price trajectories will become a central political issue, influencing decisions on SPR releases, diplomatic engagement, and the pace of military operations.

Understanding the mechanics behind gas price movements during the Iran conflict allows consumers to make informed decisions about fuel purchasing timing, businesses to plan for input cost scenarios, and policymakers to calibrate interventions (SPR releases, refinery waivers, Jones Act suspensions) based on which transmission mechanisms are driving prices at any given moment.

Related Coverage

• Oil Price Shock After Iran Strikes: The Mechanics Behind the Headline Moves
• Strait of Hormuz Shipping Risk Scenarios: What Changes First During Escalation
• Iran Shadow Fleet Sanctions: How Enforcement Works
• FinCEN Red Flags for Iran Oil Smuggling
• Flight Routes and Conflict Zones: Middle East Airspace

Sources

Last updated: February 28, 2026. This article is revised when new evidence materially changes what can be stated with confidence.