Gas prices are rising fast—and the worst may not be priced in. Here’s the real math behind $5 gas.
KEY TAKEAWAYS
Gasoline prices are currently averaging $4.48 nationally, up roughly 50% since the start of the Iran conflict. This reflects rising crude prices and supply disruptions rather than local pricing decisions.
Each $10 increase in Brent crude translates to approximately $0.23 - $0.25 per gallon at the pump with a 4 - 6 week lag. Current prices reflect prior geopolitical events, not the most recent escalation.
Three scenarios exist: stable crude near $115 implies $4.50 - $4.75 gas, prolonged disruption pushes prices toward $5.25 - $5.50, and severe supply depletion could result in $6.00 - $6.50 gas nationally.
Global oil markets were supported by a large inventory buffer, but recent draws suggest that cushion is declining. Continued depletion combined with supply disruption could accelerate price increases.
Higher fuel costs act as a regressive economic pressure, reducing discretionary spending and increasing costs across supply chains, especially via diesel-dependent transportation.
MY HOT TAKES
Gasoline prices function as a psychological anchor for inflation expectations, far beyond their actual share of consumer budgets. Consumers react to what they see frequently, not what they spend the most on.
Markets are underestimating the lag effect between crude price spikes and pump prices, meaning the full economic impact has not yet been felt. The current price level is backward-looking.
The Strait of Hormuz is not just a geopolitical story–it is effectively a pricing mechanism for global energy. Perception of risk alone is enough to sustain higher prices.
The oil inventory buffer has been masking the true severity of supply disruption, delaying price spikes that would otherwise have already occurred. Its depletion represents a structural shift.
The Federal Reserve is constrained, unable to offset supply-driven inflation with rate cuts, leaving consumers exposed to both rising costs and high borrowing rates simultaneously.
You can quote me: “Gasoline is only 5% of your budget—but it drives 100% of your inflation psychology.”
Cinco de Cry-o–at the pump! I have to be honest with you. I don't drive all that much anymore. I love public transportation and I am lucky enough to have access to quite a bit of it. Where that fails, I have my wife, who is happy to take the wheel and let me wax philosophical from the passenger seat. My kids call me a passenger princess–lol. 🤣 Whatever, the partnership works–she feels safer while in control, and I am happy to sit back and count lightposts. Because of this more recent development in my life, I don't have to pull my credit card from my wallet for gasoline. But–and this is important–I still see the prices on the signs as my wife drives by the filling station. In fact, as a passenger princess, I have time to look at all the signs and compare. And what I see actually makes me a bit nervous! Now, I am not saying that it has changed my spending habits elsewhere, but there is some level that it would–even if I don't have to buy gas. That, my friends, is how important gasoline prices are–even as a psychological indicator of inflation. And yes, for those who DO have to buy gasoline to get to work, it is a nightmare! The national average of unleaded gas right now is $4.48 a gallon–up by some 50% since the start of the Iran conflict. I don't know about you, but my income is not quite keeping up with that increase, even if gas only represents about 5% of folks' incomes. It is just a matter of time before higher fuel costs propagate through the supply chain and start showing up in the other 95% of monthly budgets. This all begs the question–how bad can this get?
Let me start with the mechanical reality, because this is where most people get lost. The price you see on that sign is not set by your local gas station owner. It is set in a narrow strip of water 21 miles wide on the other side of the planet. Brent crude, the global oil benchmark, closed yesterday at $114 a barrel! Every $10 move in Brent crude translates, with a four to six week lag, to roughly 23 to 25 cents at the pump. That lag is important, because it means the full weight of Monday's escalation which included Iranian drones hitting the Fujairah oil hub, the US Navy sinking Iranian patrol boats under Operation Project Freedom, a South Korean cargo ship catching fire in the strait, has not yet shown up in the number on that sign. What you are seeing today is yesterday's war. This week’s war hasn't even been priced in yet.
So let's do the math, because I think you deserve more than vague warnings about things getting worse.
At $114 Brent, we are sitting at $4.48 nationally. That is your baseline today. The EIA, in its most recent outlook, projected Brent peaking near $115 a barrel in the second quarter under an assumption that Hormuz flows gradually resume. That assumption is looking increasingly generous after this week. But let's take it at face value as Scenario One–fragile status quo, crude stays in the $110 to $115 range through the summer. Under that math, you are looking at $4.50 to $4.75 at the pump. Painful. Annoying. But survivable. Your summer road trip costs a little more, your Amazon deliveries get marginally more expensive, and you grumble. Life goes on.
Scenario Two is where things get interesting. The Strait stays effectively closed. Commercial shipping confidence doesn't recover–and here is the dirty secret that nobody is saying loudly enough: Iran doesn't need to sink ships every day to win that game. It only needs to maintain the perception of risk. Insurance markets price accordingly, adding somewhere between $5 and $15 per barrel in war-risk premiums on top of the underlying crude price. That pushes Brent into the $125 to $135 range. Do the math with me: at $130 Brent, national pump prices approach $5.25 to $5.50. California, already well north of $5.60, crosses $6. That is not a tail risk. That is a scenario unfolding in real time.
Then there is Scenario Three, and this is the one that keeps serious analysts up at night. Before this war started, the global oil market was sitting on a massive cushion with somewhere in the neighborhood of 580 million barrels of crude in floating storage and onshore warehouses, a leftover from the pre-war oversupply era. That cushion is why prices haven't gone to $200 already. Go ahead and read that again please. 👈👀 But US crude inventories unexpectedly plunged 6.2 million barrels in a single week recently. The buffer is burning. When it runs out–and analysts are now talking in terms of months, not years–and the Strait is still functionally closed, we are looking at Brent north of $150. At $150 crude, the national pump average lands somewhere between $6.00 and $6.50. Diesel goes above $7.00. At that point, we are not talking about sticker shock at the filling station. We are talking about a genuine economic fracture, because diesel is not a commuter fuel–it is the fuel of every truck that moves every product on every shelf in every store you walk into.
Here is what makes this structurally different from every energy crisis we have lived through before. There is no clean off-ramp. Even if Washington and Tehran reach a deal tomorrow, the Ras Laffan LNG complex in Qatar, which was hit in March, is carrying damage that analysts estimate will take three to five years to fully repair. The mine-clearing alone in the strait takes weeks under the best conditions (DOW recently cited 6 months). Infrastructure doesn't heal on a diplomatic timeline. The world that existed on February 27th is gone.
And the Federal Reserve? Completely paralyzed. The Fed cannot cut rates while energy prices are pouring gasoline on an inflation fire. Which means no relief from the mortgage market, no relief from credit card rates, no relief anywhere that requires the cost of money to come down. The consumer is getting squeezed from both ends with higher costs at the pump and higher costs of capital, all with no cavalry on the horizon.
So what do you do with all of this? You do not panic. But you do pay attention. Energy exposure in your portfolio still makes sense. Specifically, domestic producers, pipeline companies, and refiners with US feedstock access are the structural beneficiaries of a sustained high-crude environment. Inflation hedges belong in the conversation. Namely, TIPS, commodities, and gold, which is already printing record prices precisely because smart money understands what I just walked you through. Long-duration bonds remain dangerous as long as the Fed is frozen. And if you are looking at consumer discretionary names in your portfolio, understand that every dollar being spent at the pump is a dollar not being spent at the mall, the restaurant, or on the vacation. That tax is real, it is regressive, and it compounds.
I started this morning as a self-described passenger princess, counting lightposts and avoiding the pump entirely. But even from the passenger seat, I can read those signs. And right now, those signs are telling me a story that the equity market hasn't fully absorbed yet. Watch Brent, watch the weekly crude inventory draws, and watch whether Project Freedom escorts become a daily operational reality or a one-week press release. Those three data points will tell you everything the number on that sign won't.
YESTERDAY’S MARKETS
On Monday,the Dow Jones Industrial Average fell 557 points, or 1.13%, to close at 48,941.90, while the S&P 500 slipped 0.41%, and the Nasdaq lost 0.19%. Energy was the only S&P sector to finish in positive territory, gaining 0.95%, while Materials and Industrials led the declines, falling 1.62% and 1.02% respectively. WTI crude surged 4.39% to close at $106.42 per barrel and Brent crude jumped 5.8% to $114.44, its highest level since May 2022, as US and Iranian forces exchanged fire in the Strait of Hormuz and the UAE reported missile strikes on the Fujairah oil hub. The 10-year Treasury yield rose 6 basis points to 4.44%.
NEXT UP
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