In January, the White House celebrated what they claimed to be the “largest tax refund season in U.S. history,” promising hundreds of dollars more in refunds this tax year as a result of changes to the tax code, thanks to the One Big Beautiful Bill Act (OBBBA).
But economists warn those savings could go up in smoke—or rather exhaust, cancelled out completely by elevated gas prices as a result of the ongoing war in Iran.
An analysis led by economists at the Stanford Institute for Economic Policy Research found that should the Strait of Hormuz remain closed for another three weeks and oil top out at $110 per barrel in March, gas would peak at $4.36 per gallon in May. As a result, the report found Americans would be paying on average $740 more for gas this year. The economists noted that extra spend would cancel out the $748 more in tax refunds projected for a typical household, according to the Tax Foundation.
Gas prices have surged more than 90 cents since Feb. 28, to $3.91 per gallon, when President Donald Trump initiated a major military operation against Iran, in a joint effort with Israeli forces. The ongoing strikes and counterattacks have resulted in the effective closure of the Strait of Hormuz, the chokepoint through which more than 20% of the world’s oil supply is exported.
With oil prices hovering near $100 per barrel—and spiking above $115 this week—gas prices have subsequently reached their highest levels since 2023. But even if the conflict ends in a matter of weeks, Americans are still likely to feel pain at the pump.
In a note to clients, Oxford Economics analysts similarly calculated that consumers would spend $60 billion more on gas in 2026, should gas prices average out to $3.60 per gallon, “almost exactly offsetting the boost from refunds.”
These elevated gas prices are likely to impact lower- and middle-income consumers the most, exacerbating a K-shaped economy of wealthier Americans increasing consumer spend and lower-income households struggling to make ends meet. The bottom 80% of earners spend close to 4% of their budget on gas—nearly twice as much as their higher-income counterparts, Oxford analysts wrote.
Moreover, the tax cuts outlined in OBBBA, such as for overtime and state and local taxes, will likely benefit middle- and upper-class Americans more, “deepening the bifurcation of the consumer that we’ve seen over the past several years,” the note said. As the Act stands now, the IRS estimates refunds on average $360 greater than last year.
Why gas prices are likely to remain stubbornly high
Oil and gas prices are poised to remain elevated until at least the end of the year. The Energy Information Administration (EIA), a semi-independent agency under the purview of the Department of Energy, projected that as things stand now, gas prices will average out at $3.34 this year and $3.18 in 2027. Goldman Sachs analysts likewise suggested oil prices could remain above $100 per barrel through 2027 if supply chain disruptions continue.
Even if the Strait of Hormuz were to reopen, it would take time for global oil supply to rebalance. The closure of the trade passage has resulted in a backlog of oil tankers, and directing the vessels through the waterway could take weeks to resolve. Oil production in the Gulf may also be hampered by infrastructure damage as a result of strikes.
The Trump Administration has made efforts to bring down soaring gas prices, like on Wednesday, when the White House temporarily suspending the Jones Act: a federal law created in 1920 aimed to regulate domestic maritime shipping and trade. It prohibits foreign-flagged ships from transporting goods between U.S. ports. By suspending the law, the Trump Administration aims to ease supply disruptions driving up the price of oil, hoping that by opening up domestic routes to those foreign vessels, it will reduce shipping costs and speed up deliveries.
Policy experts aren’t sure the decision will make much of a difference in gas prices. The Center for American Progress estimated suspending the Jones Act would lower gas prices by three cents per gallon.
Bloomberg reported Vice President JD Vance will meet with oil executives to address soaring oil prices.
“We know they’re up, and we know that people are hurting because of it,” Vance said at an event in Michigan this week. “And we’re doing everything that we can to ensure that they stay lower.”
This story was originally featured on Fortune.com
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