Oil shocks do not stop at the gas pump. They move quietly through groceries, travel, clothing, medicine, and monthly household budgets.
KEY TAKEAWAYS
Oil shocks create both market risk and household risk. Markets may price systematic risk quickly, but consumers feel the second-order effects slowly.
Corporate earnings may not yet show the full impact of the Iran conflict. Forward guidance is where companies will start pricing in higher future costs.
Companies with pricing power will not absorb higher input costs forever. They will pass those costs to consumers wherever possible.
Petroleum affects far more than gasoline. Plastics, packaging, clothing, medicine, household supplies, and travel all depend on oil-linked inputs.
The second wave of inflation arrives with a lag. It shows up gradually in groceries, trash bags, prescriptions, airfare, and tighter monthly budgets.
MY HOT TAKES
The gas pump is only the opening act. The real household inflation hit comes later, hidden inside everyday products.
Markets may be right to focus on earnings, but consumers should focus on the fine print. Oil shocks travel through supply chains before they hit credit card statements.
The Millers are not a special case. They are the American household budget with names, a practical Toyota RAV4, and a Social Security check.
Tariff-style thinking applies here too. Companies are rational, margins matter, and consumers usually end up holding the bag.
This is not bearish panic. It is practical risk management with a calculator, a grocery receipt, and a very annoying oil chart.
You can quote me: “There will be no headline that says ‘Your Shampoo Now Costs More Because of a War.’”
Don’t look now. Have you met the Millers? Do you know them? Are YOU the Millers? Now that markets have decided to look past the Iran conflict and focus on corporate earnings as a driver, I thought it important to recognize the more tangible impacts a prolonged Iran conflict may have on your…well not-portfolio, as in, your life. But first a side-note. Markets are right to be focused on corporate earnings. The Iran war certainly impacts the overall market by inserting systematic risk into the system. That means, the geopolitical risk and uncertainty affects the overall market causing ships to rise and fall with the tide. The market seems to have digested that.
Aside from systematic risk, there are more direct impacts on individual companies–ones which have some reliance on the middle east and the products it is best known for. That idiosyncratic risk may come from rising fuel costs–an obvious one–or even companies that sell to the region, such as luxury brand companies. This current earnings season reflects a time before the war broke out in Iran, so it is not likely to be reflected in announced earnings. However, forward guidance will absolutely reflect companies' assessment of costs down the road. We are already seeing plenty of that show up in announcements to date.That said, now that many expect the conflict to draw out over a longer period in one way or another, it is prudent to recalculate near- and mid-term earnings expectations for companies that will be impacted directly. The recalculations will be reflected in prices. For example, it would be hard to believe that a company that uses fuel as a direct input cost (think airlines, cruise lines, shipping companies) would not experience some form of margin compression, which should–in theory at least–have a negative impact on the company’s stock price.
However–and this is important. Firms are rational. That is an economic concept–though basic–very telling. Companies with some form of price power will not eat the entire cost increase. Nope. They will pass those along to consumers–you and me–as fully and as soon as possible. You know where this is going. It is only a matter of time before those cost increases start showing up in our monthly budget beyond the price shock at the gas pump. Don’t believe me? Monitor shipping costs or airline costs over the next few weeks, then come back to me with your findings. Really.
Last week, I took it a step further by showing you how the cost of milk and bread are likely to increase later this year. But that is just the tip of the iceberg. Petroleum is far more impactful on the things that we pay for on a monthly basis than you might want to believe. Now, on to the Millers.
Bob and Carol Miller are retired, somewhere in middle America, probably Ohio or Indiana, maybe Missouri. Bob spent thirty-five years in manufacturing before his pension kicked in. Carol managed the household with the precision of a CFO and the patience of a saint. They own their home outright. Their Social Security checks arrive on the third Wednesday of every month like clockwork. They are not wealthy, but they are comfortable–or at least they were, right up until a war eight thousand miles away started quietly rearranging their monthly budget without asking permission.
Here’s what the Millers already know: gas is more expensive. They feel it every time Bob pulls their Toyota RAV4 into the station. The national average has moved from $2.98 a gallon before the war to over $4.00 today, and they have adjusted, grudgingly. That’s the first wave, and most people think that’s the whole story. It isn’t. Not even close. What’s coming next is quieter, slower, and in some ways more insidious, because it hides inside things you never thought had anything to do with a war in the Persian Gulf.
Here is the thing about crude oil that nobody tells you at the kitchen table. Only about 85% of it gets refined into fuel. The rest–that other 15%--gets broken down into petrochemicals, which are the building blocks of more than six thousand everyday products. We are talking about the plastic clamshell packaging on Carol’s strawberries. The squeeze bottle of dish soap under the sink. The pill organizer Bob fills every Sunday night. The garbage bags. The shampoo bottle. The blister pack on the aspirin. The polyester in the shirt Carol just bought at Kohl’s. All of it, in one way or another, traces back to a barrel of crude oil. And right now, that barrel costs a lot more than it did in February.
The reason the Millers haven’t felt this yet is simple: supply chains have a lag. Manufacturers locked in raw material contracts months ago. Retailers are still moving through existing inventory. There is a buffer, and right now that buffer is absorbing the shock. But buffers run out. Experts who study this for a living say that if oil stays elevated for three to four months–and at this point, virtually every credible forecast says it will–consumers can expect to pay higher prices for the better part of a year or two after that. And before you comfort yourself with the thought that a peace deal will fix everything, let me stop you right there.
Let me remind you about something I reported to you last week. The Pentagon told Congress, in a classified briefing to the House Armed Services Committee, that fully clearing the Strait of Hormuz of Iranian-laid sea mines will take up to six months—and that the operation cannot even begin in earnest until the shooting stops completely. Let that sink in. We are not talking about six months from today. We are talking about six months from the moment a peace agreement is signed, sealed, and enforced. Iran reportedly laid more than twenty mines in and around the strait, some of them GPS-guided! These are smart mines that can be remotely repositioned and are nearly impossible to detect with conventional equipment. One former director of the US Naval Mine and Anti-Submarine Warfare Command called it a “nightmare scenario.”
Even if those mines are cleared on schedule, the infrastructure damage along the Gulf is not something that gets repaired over a long weekend. The attack on Qatar’s Ras Laffan industrial complex–the world’s largest LNG hub, responsible for roughly twenty percent of global supply–knocked out seventeen percent of Qatar’s export capacity. QatarEnergy estimates repairs will take up to five years. Five years. The tanker traffic that was once routine through the Strait is not simply going to resume the moment a ceasefire is declared, either.
Shipowners–also rational actors–will demand proof of safety before they commit a $100 million vessel and its crew to a channel that was, not long ago, a shooting gallery. Insurance markets will take months to reprice. Shipping lanes that were abandoned will require certified clearance before the major carriers bring them back online. Meanwhile, in the wings, you have factions within Iran–specifically the Revolutionary Guard Corps–whose institutional interests are served by continued disruption, peace deal or no peace deal. These are not people who take orders from a treaty.
What this means in plain English is that elevated crude prices are baked into the calendar through at least the end of 2026, probably well into 2027. The question for the Millers is not whether they will feel this. They will. The question is exactly how much.
Let’s do the math. And I want to be clear about something before we start: these are estimates built from real data, sourced from the Bureau of Labor Statistics, industry analysts, and companies that have already announced price increases. I am not making these numbers up. I am assembling them, which is something your monthly credit card statement is going to do for you…er, automatically in about ninety days, whether you’re paying attention or not.
The average American household currently spends about $540 a month on groceries. Virtually everything in that cart arrives in plastic packaging. Think bottles, bags, trays, wraps, pouches, lids. Polymer prices for the resins used in food packaging moved sharply higher in March and are expected to keep climbing through mid-year. A conservative 4% pass-through on the grocery bill adds roughly $22 a month. That doesn’t sound like much until you realize it’s $264 a year, and it compounds across every other category simultaneously.
Personal care products, like shampoo, conditioner, lotion, toothpaste, deodorant, run the average household about $78 a month. Every single one of those items lives in a plastic container derived from petrochemicals. Add another 3% to 4% and you’re looking at an extra $3 a month there. Household supplies–trash bags, cleaning products, paper towels wrapped in plastic, laundry detergent in its plastic jug–run about $80 a month. Trash bags, because they are almost entirely plastic with essentially no alternative, will see the sharpest increases of any consumer product in this category. Pencil in another $5 there.
Then there’s clothing and footwear, a category that is going to surprise a lot of people. The Footwear Distributors and Retailers of America published an analysis showing that roughly 70% of synthetic shoe materials are petrochemical-based, with 30% of material costs directly tied to oil prices. Their estimate: a 1.5% to 3% increase in what consumers pay for shoes by late summer. The average household spends $167 a month on apparel. Call it another $5. And if Bob or Carol takes any medication–and statistically (I am, sadly, part of that statistic, though I am not quite their age yet 😥), at their age, they almost certainly do–that category deserves its own moment of silence. One wound care company has already announced a 15% price increase to its customers, citing a 20% rise in its own costs. The adhesives in bandages, the coatings on pills, the plastic in blister packs, the bottles that hold every prescription in America: all petrochemical. Add $15 to $22 on a modest monthly pharmacy spend.
Now add airfare, because the Millers have a trip planned. They always have a trip planned–um, that’s what retirement is for. Summer 2026 fares are already tracking 18% higher than a year ago. Before the war, refueling a single Boeing 737-800 cost about $17,000. By early March, that number had crossed $27,000, which is a $10,000 increase for one flight! United Airlines CEO Scott Kirby said publicly that if fuel stays at current levels, it means an extra $11 billion in annual jet fuel expense for his airline alone. That cost is not going to be absorbed quietly. It’s going on your ticket. On a household that budgets modestly for travel, that’s another $25 to $30 a month when you average it out over the year.
Here is where it gets real–let’s add it all up. The gas pump–Wave One-already costs the Millers about $40 more a month than it did in February. Wave Two, the slower, stickier, hide-in-plain-sight wave that I’m describing right now, adds somewhere between $95 and $110 a month on top of that. We are talking about $135 to $150 in additional monthly household spending, or roughly $1,700 a year, that did not exist on the Millers’ budget in January. For a retired couple on Social Security, that is not a rounding error. Their cost-of-living adjustment for 2025 was 2.5%. The war, in a matter of months, has eaten it entirely–and then some.
The cruelest part of the second wave is its timing. These increases do not all arrive on the same day. They trickle in, a few dollars more on the grocery receipt this week, a price bump on the trash bags next month, a sticker shock on the sneakers in August, a fuel surcharge on the September flight to visit the grandkids. Each one, in isolation, feels manageable. Together, they represent a structural repricing of the American household budget that will persist long after the last headline about the Strait of Hormuz has scrolled off your phone screen.
So no, the Millers are not going to read about this on the front page. There will be no headline that says “Your Shampoo Now Costs More Because of a War.” It doesn’t work that way. What will happen is quieter: the monthly credit card bill will climb, the grocery haul will feel slightly thinner for the same dollar, and Bob will wonder why the budget feels tighter when nothing obvious has changed. Something has changed. A twenty-mile-wide chokepoint at the mouth of the Persian Gulf changed it, and the full invoice hasn’t arrived yet. Are you the Millers?
Now, I don’t want to cast a shadow on your day. My long-time followers know that I am a generally upbeat–and mostly bullish–person. I am still both of those. Very much so. However, you also know me as a pragmatist who is a big advocate of information. Remember? I am the fine print guy. These things that I have highlighted are the important–often under-reported–fine print that you need to consider when making purchasing and investment decisions. Ah, there it is. And finally, some good news–because I can’t end on a negative note. Earnings season is going exceptionally well and we are just about to get to the megacap tech stocks which are expected to have a strong showing. If earnings season stays on track…well, let’s see before we make that call. Stay focused, stay positive–don’t forget the fine print.
FRIDAY’S MARKETS
Friday was a strong finish for equities, with the S&P 500 climbing by 0.8% to close at a record 7,165 and the Nasdaq surging 1.6%, also an all-time high, driven largely by Intel's blowout earnings which sent the chip sector broadly higher. The Dow was the odd one out, slipping by -0.2% as Merck, Verizon, and Walmart weighed on the blue chips. For the week, the S&P gained 0.6% and the Nasdaq added 1.5%, while the Dow shed -0.4%. Crude oil ended the week near $96 a barrel as stalled Iran peace talks kept energy markets on edge heading into what promises to be the most consequential earnings week of the season.
NEXT UP
No major economic releases today, but the week ahead is chock full. The earnings parade continues and the FOMC will meet this week. Additionally, we will get more housing numbers, more regional Fed reports, Conference Board Consumer Confidence, Personal Income, Personal Spending, PCE Price Index, GDP (Q1), and ISM Manufacturing. You better check back each day–it will go a long way in keeping you from getting squashed by the competition.
Important earnings today: Dominos Pizza, Verizon, Ventas, Solaris, Amkor, Rambus, and Cadence Design.