High Gas Prices Are Here For A While, Even If Everything Goes Perfectly in Iran

If you've had to tighten your budget to pay for $4-a-gallon gas, don't expect to relax any time soon, despite this week's ceasefire in the Iran war.

Friday's Consumer Price Index data showed exactly how much surging gasoline prices pushed up the cost of living for U.S. households in March. The price of motor fuel rose 21.4% in a single month, a record-high increase in data going back to 1967.

The squeeze could linger for months. As the old saying goes, gasoline prices have a habit of rising like a rocket and falling like a feather. Economists and other experts say oil prices will be slow to drop after their initial retreat following the ceasefire news. Fuel prices are likely to retreat even more slowly, assuming tensions ease in the Middle East and ships resume sailing through the Strait of Hormuz.

"Even if a long-lasting deal to end the war is reached and the Strait of Hormuz is fully reopened, it would take months for oil, gasoline, diesel and other commodity supplies to snap back to pre-war levels and thus for prices to settle back to pre-conflict levels," Kathy Bostjancic, chief economist at Nationwide, wrote in a commentary.

The economy must deal with the fallout from the oil shock for a long time to come. It could have ripple effects on inflation, consumer spending, and other major barometers of the health of the economy.

Nationwide, the average price of a gallon of regular gas fell two cents to $4.15 a gallon Friday, remaining well above the Feb. 28 price of $2.98, according to AAA. If tensions continue to ease in Iran, relief for drivers will come in similar drips and drabs, according to Patrick DeHaan, head of petroleum analysis at GasBuddy.

"Wholesale prices are volatile, but retail prices are averaged," he wrote on the X social media platform this week. "Stations raise prices quickly when costs jump to avoid losses, but when costs fall, they lower prices gradually as they sell through higher-priced inventory. So instead of prices bouncing wildly, what drivers see is actually a slower climb—and an even slower descent."

Falling fuel prices are far from guaranteed. Gas prices follow the cost of the oil from which it's refined, and the supply of that oil has been seriously restricted since the war began. The key to the disruption is the Strait of Hormuz, the crucial waterway that normally carries about 20% of the world's oil supply.

Ship traffic slowed to a trickle when the war broke out and still hadn't fully resumed as of Friday, according to news reports. That means higher oil and gas prices for the duration, however long that is. And once ships get moving again, it could take months for supply chains to recover.

"The duration of this shock remains uncertain, but even if the conflict were to end tomorrow—which is unlikely—it would take weeks or months for oil flows to normalize and much longer for the natural gas market to return to equilibrium,' Benjamin Tal, an economist at CIBC, wrote in a commentary. "By all accounts, we are in the midst of a significant oil shock."

Forecasters at Goldman Sachs laid out three scenarios for oil prices in the coming months.

In the best case, the war ends, traffic recovers, and crude oil prices fall, averaging $80 a barrel in the fourth quarter of the year, down from the current level of $96 as of Friday afternoon, according to the Brent international benchmark.

Should reopening the strait take another month, oil would average $100 a barrel. If things go even worse than that, oil could shoot back up to $115 a barrel average in the fourth quarter, the same as it was at the height of the crisis, according to an analysis by Daan Struyven, co-head of global commodities research at the investment bank.