Iran war energy shock hits U.S. economy, gas and diesel climb: Analysis

The U.S. economy is more vulnerable than ever to the problems in energy markets caused by the Iran war. The economy has been remarkably resilient, but the buffers that protected Americans from earlier price spikes are wearing thin. 

Bottom line: The war will erode Americans’ standard of living this summer even if the actual fighting stays more contained than the first phase of the conflict. 

From President Donald Trump’s perspective, having kicked off a return to direct conflict with Iran, there is now little he can do to shield Americans from the economic fallout.

The White House says the president has been honest with the American people and that prices will fall soon. “As the U.S. military degrades the terrorist Iranian regime’s ability to attack commercial vessels and disrupt the free flow of energy through the Strait of Hormuz, oil and gas prices will plummet back to pre-conflict levels,” Taylor Rogers, a White House spokeswoman, said in an email.

Anyone who has filled up at the pump in recent days has already felt the pain. The national average price at the pump was $4.06 a gallon on Wednesday, up 4.4% from $3.89 a week ago, according to AAA. 

That’s painful. But for the full economic effect, watch diesel, “because of course that is the lifeblood of the U.S. economy,” said Christian Lawrence, head of Americas and energy market strategy at Rabobank. 

The U.S. Energy Information Administration’s benchmark for diesel jumped nearly 34 cents last week to $5.13 a gallon, the biggest weekly climb since the the first week of the war in March. Those figures are used to determine fuel surcharges that airlines and other companies impose on customers, which can push price hikes out to the rest of the economy.

We’ve been here before, of course. The start of the war in March saw oil prices spike and gas and diesel prices follow, only to fall when the shooting paused a few weeks later. With periodic reports that the U.S. and Iran are trying to hash out a new pause in the fighting, it might seem like a return to lower prices is only a presidential Truth Social post away.

Unfortunately, that’s where things have changed, particularly in economically vital diesel. 

“There’s a bit of an asymmetric relationship there in the sense that, if oil goes up, then diesel prices are going up,” Lawrence said. “If oil goes down, diesel prices might come off a little bit, but they’re still going to be much higher.”

Problems have been accumulating in the refining sector that turns raw crude oil into the distilled products that actually get pumped into cars and trucks. U.S. refineries are maxed out at 96.1% of their capacity, the EIA said Wednesday.

If refineries could produce more at that level, they would. U.S. refineries kicked into overdrive when the war started to help produce jet fuel and other products for…