Drivers hopeful that the U.S.-Iran framework deal will translate to lower gasoline prices will probably have to wait weeks, or longer, to see meaningful improvement.
Energy analysts refer to the swing of prices as “up like a rocket, down like a feather” — a phenomenon that means gasoline costs quickly rise alongside the price of crude oil but are slow to follow its descent.
One of the main reasons is that gas station owners tend to lose money or make only small profits when prices are shooting up because they are not able to raise prices fast enough to make up for soaring costs. So when wholesale prices start to go down, station owners are slow to bring retail prices down to make up for their poor financial performance on the way up.
The average price of regular gasoline in the United States went up roughly 50 percent between Feb. 28, when the United States and Israel attacked Iran, and the middle of May. It has receded since then and was $4.07 a gallon on Monday, according to the AAA motor club.
The price spiked as most oil shipments were blocked from traveling through the Strait of Hormuz, a vital waterway along Iran’s southern coast.
President Trump last month broached the idea of pausing the federal gasoline tax, which adds 18.4 cents to every gallon of regular pumped at a station. “It’s a small percentage, but it’s, you know, it’s still money,” he told reporters in the Oval Office.
Some research suggests that driver behavior is also to blame for the slower decline, said Christopher Knittel, a professor of energy economics at M.I.T.
“When prices are going up, consumers are very adamant about checking the prices of multiple gas stations,” Mr. Knittel said. “But when prices start to fall, they do that less, so gas stations can kind of get away with not lowering prices one for one with oil.”
When crude oil prices fall, economists say, it typically takes at least several weeks for gasoline to meaningfully follow. But the war in Iran has complicated the outlook for supplies, and it could take months for retail fuel costs return to prewar levels, analysts said.
There are two reasons that prices could linger on the higher end, Mr. Knittel said. One is the large amount of infrastructure in the Middle East that has been damaged or destroyed, some of which will take years to rebuild. The second is an increase in the cost of oil because of uncertainty about whether sailing through the Strait of Hormuz is safe.
“Basic economics tells us the riskier business is, the higher profits you have to earn to want to enter into that business,” Mr. Knittel said. “Oil and gasoline and natural gas has gotten more risky.”
“That might actually keep us from ever getting back to prewar levels for gasoline,” he added.
The last time gasoline prices rose to current levels was in 2022 after Russia invaded Ukraine. Then, investors reacted to potential supply losses, but now the effects are more tangible. Before the war with Iran, about 20 percent of the world’s oil traveled through the Strait of Hormuz.
Energy companies have incentives to keep prices higher for as long as they can, but the lag is also explained because of how long it takes to transport oil to refineries, turn it into fuel and distribute that fuel to where it is used. The gasoline being sold today was refined from expensive crude.
The price of oil, no matter where it comes from, is determined by global supply and demand. Prices can change quickly when supply is cut off, or if demand rises or falls. The United States is a net exporter of petroleum products, but its refineries use a lot of imported oil to make gasoline, diesel and other fuels.
Future energy costs may also remain high because investors and oil companies will be wary that Iran will block the strait whenever Tehran sees fit.
“We’ve now opened a Pandora’s box,” said Bernard Yaros, the lead U.S. economist at Oxford Economics. “Iran knows that it can wield this geopolitical weapon of closing down the strait and exacting economic pain.”
The cost of fuel has worsened an economic divide in the United States, as households with lower incomes have struggled to pay more for gasoline. But the behavior of those with higher incomes has remained largely unchanged. With demand still relatively high, prices at the pump are unlikely to go down much.
“Upper-middle, higher-income households, they’re still able to spend through this shock,” Mr. Yaros said. “Without that demand destruction and with supply still constrained, it’s tough to see prices really falling like a rock anytime soon.”
