Key insights
- Rising gas prices, driven by the Iran war and increasing oil prices, are eroding household liquidity and contributing to inflationary pressures. The national average gas price has risen significantly in March, with some states already exceeding $5 per gallon. Pantheon Macroeconomics forecasts the national average to reach $4.20 soon. This increase could negatively impact consumer spending and overall economic growth, creating a bearish signal for the US equity market.
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The Iran war continues to push oil prices higher, extending a rally that began at the start of March. Those rising crude costs are translating into higher gasoline prices for drivers across the country.
The national average for regular gas rose another 3 cents overnight to $3.91 per gallon, according to AAA, bringing the increase to 93 cents in 20 days. Before the March run-up, the national average had held below $3 for 13 straight weeks—the first time in $2 territory since 2021. Prices are likely to continue rising. Based on current oil prices, forecasters at Pantheon Macroeconomics expect the national average to hit $4.20 in the coming days.
Gasoline is one of the most frequent purchases households make, so rising pump prices can quickly strain budgets. “Nothing erodes household liquidity faster than higher gas prices,” economist Joe Lavorgna said recently on CNBC.
While the average price has surged everywhere, state-level prices vary widely.
Drivers in Oklahoma and Kansas are now seeing the cheapest price at the pump—at $3.26, according to AAA—with the next cheapest states being Iowa, Arkansas, and the Dakotas. All 50 states have averaged above $3 per gallon since March 11.
At the high end, three states now average more than $5 per gallon: California leads at $5.66, followed by Washington and Hawaii. Six more states—Nevada, Oregon, Arizona, Alaska, and Illinois, along with Idaho joining the list today—are averaging above $4.
The result is a difference of $2.40 per gallon between the cheapest and most expensive states.
The national average briefly topped $5 per gallon in June 2022. Amid the current surge, three states have crossed that mark, though most states still have averages in the $3 range.
The wide differences in state gas prices aren't random, and the Iran-driven surge has made those differences more visible than ever. They reflect structural factors that shape how fuel is taxed, produced, and delivered across the country.
Fuel taxes are one of the biggest drivers of variation. According to the U.S. Energy Information Administration, federal and state taxes accounted for more than 14% of the average price per gallon in 2023. Because some states levy significantly higher gasoline taxes and fees than others, those differences show up at the pump.
Geography and infrastructure also matter. States that are closer to major refineries or pipeline networks often benefit from lower transportation costs, while more isolated markets can face supply constraints that push prices higher.
In some cases, environmental rules play a role. California, for example, requires a cleaner-burning gasoline blend that relatively few refineries produce, contributing to its persistently higher prices.
When oil prices rise sharply, those built-in cost differences can amplify the impact in already expensive states. And even when crude pulls back, those underlying factors don’t disappear—helping explain why the gap among the states can remain wide.