Strait of Hormuz: Impact & Response Hub

Even when oil prices fall, gas prices don’t always follow immediately — or to the same extent. While crude oil is the largest input cost for gasoline, other factors can keep prices elevated in the short term. In the spring, seasonal dynamics play a major role: demand increases as more people travel, and stations transition to more expensive summer-blend fuel, which is required to meet environmental standards. These factors typically add upward pressure on prices, even in years without major geopolitical disruptions.

As a result, even though oil prices have recently declined from their peak, gas prices have remained relatively stable around $4 per gallon. This reflects a balance between easing oil costs and ongoing seasonal pressures. Meaningful relief at the pump will likely require a broader resolution to global supply disruptions, such as the reopening of the Strait of Hormuz. Even then, prices are unlikely to return to earlier levels quickly, especially until seasonal factors reverse later in the year.

Demand destruction refers to the process of reducing fuel consumption to match limited supply during a shortage. In the current oil crisis, global supply remains significantly constrained despite mitigation efforts like rerouting exports, releasing strategic reserves, and easing sanctions. While these actions have helped offset part of the shortfall, the world is still facing a meaningful gap between supply and demand — forcing consumption to decline through either policy measures or rising prices.

So far, much of this demand reduction has fallen on developing countries, where higher prices and government restrictions are limiting fuel use and slowing economic activity. In contrast, the U.S. has been relatively insulated due to higher incomes and its position as a net oil exporter, with only modest declines in demand. However, as the supply crunch persists, more significant demand destruction could spread to the U.S., especially if high prices continue or temporary policy measures shift the burden elsewhere rather than reducing overall consumption.

Despite the sharp rise in gas prices, current levels may actually be lower than expected given the scale of the global oil disruption. The blockage of the Strait of Hormuz — through which roughly 20% of the world’s fuel supply once flowed — created a significant supply shock. While temporary measures such as alternative pipelines, limited releases from the region, relaxed sanctions, and tapping into strategic reserves have helped offset some of the shortfall, there is still an estimated gap in global supply. Under normal conditions, this imbalance would push oil — and therefore gas — prices even higher.

However, market expectations and structural factors are keeping prices somewhat contained for now. Financial markets are pricing in the possibility of a near-term resolution to the conflict, which has tempered oil prices despite ongoing uncertainty. At the same time, higher demand for other refined products like diesel and jet fuel has shifted refinery economics, reducing pressure on gasoline prices specifically. Still, these factors may be temporary. If supply constraints persist and seasonal demand increases, gas prices could rise further — potentially exceeding levels seen during previous energy crises.

Rising gas prices have a direct impact on the food industry by increasing both production and distribution costs. Fuel is a key input across the supply chain — from diesel used in farming equipment to transportation logistics — so higher prices at the pump translate into higher costs for grocers and restaurants. Historically, a 10% increase in fuel prices leads to a 0.6% increase in grocery prices and a 0.2% increase in restaurant prices over time. The situation is further compounded by disruptions in fertilizer exports from the Persian Gulf, which can drive up agricultural costs and add additional pressure on food prices. For an industry already operating on thin margins, these cost increases are often passed on to consumers.

At the same time, higher gas prices are reshaping consumer spending. As households allocate more of their budget to fuel, they tend to cut back on discretionary spending — particularly dining out — while shifting more toward grocery purchases. Early data shows that convenience store visits have remained strong, potentially driven by increased visit frequency as consumers buy smaller amounts of fuel more often. However, these trends may evolve over time, with both retailers and consumers likely to feel increased financial pressure if high fuel prices persist. Overall, the impact of rising gas prices is twofold: increasing costs for businesses while simultaneously shifting how and where consumers spend their money.

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When gas prices exceed $4 per gallon, it marks a tipping point in consumer behavior — not because people suddenly drive less, but because they become much more intentional about how they buy fuel. Even with prices rising sharply (up more than 35% since late February), overall demand for gas tends to remain steady. Instead, consumers respond by seeking out ways to save, including comparing prices between stations, using loyalty programs more frequently, and turning to cash-back platforms like Upside.

Historical data supports this shift. The last time gas prices crossed the $4 threshold in 2022, consumer engagement with savings platforms increased significantly, with Upside transactions rising well above normal levels. Early signs suggest similar behavior now, including a surge in app downloads. In short, higher prices don’t stop consumers from buying gas — but they do push them to become more price-sensitive and proactive in finding savings.

Gas prices may be rising sharply, but consumer behavior doesn’t change as much as you might expect. Fuel demand is highly inelastic in the short term, meaning even significant price increases lead to only small reductions in consumption. For example, a 10% increase in gas prices typically results in just a 1% drop in demand. In practice, real-world data shows even less impact — despite a nearly 30% increase in gas prices in early March, overall fuel sales actually rose slightly, driven in part by seasonal factors like improved weather and the necessity of daily travel.

Instead of driving less, consumers tend to adjust how they purchase fuel. Data shows that as prices rise, drivers buy fewer gallons per visit but stop for gas more frequently, effectively spreading out the financial impact. This behavior highlights that higher prices don’t immediately reduce demand but instead shift purchasing patterns. For retailers, this means that while total fuel volume may hold steady or even increase, customer behavior at the pump becomes more fragmented and price-sensitive.

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Diesel prices are rising faster than regular gasoline prices due to a tighter balance of supply and demand. Even before the recent conflict, diesel demand was relatively strong — driven by international exports and increased need for heating oil during a colder-than-usual winter. At the same time, gasoline demand had been weaker, particularly among lower-income consumers, which kept gas prices comparatively lower. On the supply side, diesel inventories were already below average, while gasoline inventories were higher, creating a more constrained market for diesel.

The structure of fuel production also plays a role. Diesel isn’t produced independently — it’s one of several products refined from crude oil — so increasing diesel supply isn’t as simple as producing more of it without affecting other outputs. When the Strait of Hormuz disruption hit, this tighter diesel market led to sharper price increases compared to gasoline. And while most consumers don’t buy diesel directly, higher diesel costs often ripple through the economy, increasing transportation and goods prices overall.

Strategic petroleum reserves (SPRs) are emergency stockpiles of crude oil held by governments, including a large U.S. reserve stored in salt caverns along the Gulf Coast. While these reserves can be tapped during major disruptions — like the current conflict affecting the Strait of Hormuz — they are not a complete solution. Even large-sounding releases, such as the International Energy Agency’s 400 million barrels, only amount to about four days of global oil supply. Additionally, the infrastructure connecting these reserves to refineries allows for distribution across multiple regions, but it still takes time to move this oil into the market.

Ultimately, SPRs are a short-term tool that help stabilize supply and buy time for producers to respond, but they don’t address the root issue of disrupted global oil flows. The pace of release is relatively slow compared to total global demand, and drawing down reserves also limits future flexibility if the crisis continues. While these actions may help ease immediate pressure, they are unlikely to significantly lower gas prices on their own without a broader resolution to supply constraints.

Gas prices have been especially volatile in recent weeks due to the conflict in the Persian Gulf, but they’re still less volatile than oil prices themselves. That’s because oil is a global commodity with relatively fixed demand — consumers and businesses don’t quickly change how much they use — and limited short-term supply flexibility, since increasing or decreasing production is complex and slow. As a result, even small imbalances between supply and demand can lead to large swings in oil prices, which then ripple through wholesale gasoline markets.

However, those fluctuations aren’t fully passed on to consumers at the pump. Gas stations intentionally smooth price changes, typically updating prices no more than once per day to avoid frustrating customers. While prices may rise quickly when costs increase, they tend to decline more gradually over time. This means consumers still feel the impact of global disruptions, but not with the same minute-by-minute volatility seen in oil and wholesale fuel markets.

The White House’s temporary waiver of the Jones Act — a law requiring goods shipped between U.S. ports to use American-built and operated vessels — is intended to lower domestic fuel transportation costs. By allowing more ships to move oil and gasoline between U.S. ports, the policy increases competition and may reduce shipping expenses in some regions. However, transportation is only a small part of total fuel costs, so the overall impact on gas prices will be limited.

In reality, the benefits will be highly localized. Puerto Rico and Florida, which rely on Gulf Coast fuel shipments, may see slight relief or slower price increases. But for most of the U.S. — including the Northeast, Hawaii, and Alaska — the effect will be minimal due to existing supply patterns. With global oil market disruptions still driving prices, the waiver is unlikely to significantly lower prices at the pump nationwide.

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The current oil supply shock tied to the Iran conflict is, in many ways, more severe than the disruption caused by Russia’s 2022 invasion of Ukraine — temporarily removing up to 20% of global oil supply due to the Strait of Hormuz blockade. However, there are key differences that could prevent gas prices from reaching the same extremes.

Unlike in 2022, when sanctions lasted for years and oil markets were already tight, today’s prices started lower and markets are expecting a shorter disruption. The critical variable is timing: if the Strait reopens within weeks, price spikes may be contained. If closures persist into the summer, gas prices could exceed 2022 highs, creating a more prolonged impact for consumers and retailers.

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As gas prices rise amid the conflict with Iran, some consumers may wonder if stations are taking advantage by price gouging — but early data tells a different story. Fuel retailers have actually seen profit margins dip immediately following the disruption, as rising oil prices increased wholesale gasoline costs (rack prices) passed down from refineries.

While pump prices have gone up, stations are largely maintaining typical margins and adjusting prices cautiously to manage volatility. In reality, gas stations aren’t benefiting from higher prices—they’re navigating tighter margins and higher costs, aiming to stay profitable while minimizing the impact on customers.

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With oil prices surging, it may seem like the U.S. or OPEC could simply increase production to stabilize the market — but the reality is far more complex. U.S. oil production requires significant time, investment, and long-term certainty, making companies hesitant to ramp up output during what could be a short-lived disruption.

Meanwhile, many key OPEC producers are unable to bring additional supply to market due to their reliance on the Strait of Hormuz, which remains effectively closed. Add in ongoing sanctions on Russia, and global supply options become even more constrained. Until the Strait of Hormuz reopens, there is no quick fix — leaving oil and gas prices elevated in the near term.

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Iran plays an outsized role in global oil markets — not because of how much oil it produces (just ~3% of global supply), but because of where it sits. Positioned along the Strait of Hormuz, a critical shipping chokepoint through which roughly 20% of the world’s oil flows, Iran effectively controls one of the most important arteries in global energy trade.

With the strait currently closed following recent conflict, a significant portion of global supply has been disrupted—driving sharp increases in oil and gas prices. Until the Strait of Hormuz reopens, any relief at the pump is likely to be short-lived, with ongoing volatility impacting both consumers and retailers.

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