The Price of War: Fuel Costs Hit Labor Day Records as Middle East Conflict Rages

The conflict began on February 28, 2026, when the United States joined Israel in launching strikes against Iran, an operation the White House has publicly referred to as Operation Epic Fury. Tehran’s response was immediate and aimed squarely at the global economy’s most sensitive artery: the Strait of Hormuz, the narrow waterway between Iran and Oman through which roughly a fifth of the world’s daily oil supply normally passes. Iran moved to block or restrict traffic through the strait almost as soon as the fighting started, and suspected Iranian strikes on tankers transiting the waterway have continued on a near-daily basis since. Earlier this week, an attack on a Saudi tanker reportedly killed two sailors, a reminder that the shipping risk driving prices higher is not theoretical.

There was a brief moment when markets hoped the worst might be over. President Trump announced a two-week ceasefire in the spring conditioned on Iran reopening the strait, but the truce proved fragile and fighting resumed, extending a war that economists now describe as having no clear end in sight. As of this week, continued volatility in the strait has kept crude oil trading in the $90-to-$95-a-barrel range, up sharply from roughly $70 a barrel before the war began. Brent crude, the international benchmark, was trading above $95 on Friday.

The disruption isn’t limited to the strait itself. On the refining side, the war, combined with a separate conflict dynamic in which Ukraine has been striking Russian refineries and prompting Moscow to ban diesel exports, has taken a substantial bite out of global processing capacity. Russia’s diesel export ban affects roughly 800,000 barrels a day of supply, while disruptions tied to the Strait of Hormuz have affected an estimated 1.2 million barrels a day, according to Andy Lipow of Lipow Oil Associates. Valero’s chief operating officer told investors on the company’s July earnings call that the two wars combined have knocked out around 5 million barrels a day of refining capacity worldwide. Roughly 8% of the diesel needed to meet global demand of 28 million barrels a day is currently disrupted, Lipow estimated.

The national averages mask a much wider range of pain depending on where in the country a driver happens to be filling up. As of late April, California had the highest average price in the nation at $5.83 a gallon, while Oklahoma had the lowest at $3.38, according to AAA data compiled by the Center for American Progress. By the end of April, California’s statewide average had pushed past $6 a gallon, its highest level since October 2023, and by early May, at least one remote rural California county had reached $7 a gallon.

California’s situation has been compounded by problems that predate the war. Phillips 66 shut down fuel production at its Los Angeles-area Wilmington refinery by the end of 2025, and Valero closed its 145,000-barrel-per-day Benicia refinery in early 2026, together eliminating roughly 17% of the state’s in-state refining capacity, according to the U.S. Energy Information Administration. That refining loss is separate from the state’s crude supply problem: the California Energy Commission notes that before the war, the state sourced close to a third of its imported crude oil via the Strait of Hormuz. The refinery closures reduced California’s ability to turn crude into finished gasoline in-state, while the Hormuz disruption separately raised the cost and availability of the crude feeding whatever refining capacity remains, together leaving the state more dependent on imported gasoline just as global supply has grown tighter and costlier.

Other states have felt the shock differently, not necessarily in absolute price levels, but in how far they’ve climbed relative to where they started. An analysis using AAA data comparing prices just before the war (February 18) to prices in late August found that several traditionally low-price states saw the sharpest percentage swings, magnified by how low their starting point was.

Many of the hardest-hit states, in percentage terms, started from unusually low pre-war prices, which magnified the size of the increase even though their current prices remain below the national average. As of the most recent tracking, three states, California, Hawaii and Washington, have average prices above $5 a gallon, while Indiana, Mississippi and Texas remain among the cheapest in the country.

Roughly half of what drivers pay at the pump reflects the price of crude oil itself. AAA breaks the typical gallon down as follows:

That crude-cost share helps explain why the war has fed through to pump prices as quickly as it has, though the relationship isn’t a simple mechanical pass-through: refining margins, inventories, regional fuel formulations and the timing of contracts all affect how much of a given crude move shows up at the pump, and how fast.

OPEC+ has tried, with limited success, to soften the blow. The cartel spent much of 2025 boosting output to ease prices, and in early March 2026, just days after the war began, it announced a modest production increase of about 206,000 barrels a day for April. But that increase has been swamped by the loss of Middle Eastern output tied directly to the fighting; OPEC’s own data shows regional production has plunged since the war started, even as the cartel has tried to backfill the gap elsewhere.

The pump-price shock hasn’t stayed contained to gas stations. U.S. consumer prices rose 0.9% in March and 0.6% in April, according to the Bureau of Labor Statistics, pushing the annual inflation rate to 3.8% in April, the largest 12-month increase since May 2023. Energy prices tied to the war were a major contributor to that acceleration, and economists have warned the shock could spread further into transportation, food and other categories over time. A separate estimate had annual inflation at 3.3% in March, up from 2.4% in February, coinciding with the moment gasoline first pushed back above $4 a gallon for the first time in more than three years, a different measure than the April CPI figure above, but pointing the same direction. Core inflation, which strips out food and energy, moved up more modestly, reaching around 2.7% year-over-year in March, a trend worth watching as economists continue to assess how much of the energy shock is spreading into the broader economy.

Researchers at the Federal Reserve Bank of Dallas and the Centre for Economic Policy Research have tried to quantify exactly how much of that inflation traces back to the war itself. Their modeling suggests that even under a relatively optimistic scenario, in which the Strait of Hormuz closure lasts roughly one quarter before oil exports gradually resume, the resulting oil price surge would raise U.S. headline inflation by 0.6 percentage points and core inflation by 0.2 percentage points over the course of 2026. Under a sharper near-term scenario, the same researchers estimated that the initial spike in crude prices pushed annualized headline inflation up by as much as 1.7 percentage points in the first quarter alone, with elevated readings persisting through the third quarter.

Economists tracking the fallout describe a slow-moving second wave still working its way through the economy. Brian Bethune, an economics professor at Boston College, has warned that after the initial jump in the top-line inflation number, fuel surcharges will increasingly show up in the prices of other goods, groceries in particular, as businesses pass elevated transportation costs on to consumers. Lydia Boussour, a senior economist at EY-Parthenon, has said full normalization will take time, particularly for supply chains and energy capacity, describing the war’s economic effects as likely to linger well beyond any eventual ceasefire.

The White House has pushed back on the notion that the economic pain is anything more than transitional. A spokesperson told CBS News that President Trump has been clear from the outset about the temporary disruptions expected from the military campaign against Iran, and maintained that the broader U.S. economy remains on solid footing because of the administration’s economic agenda. At the same time, Trump has taken an increasingly public tone toward the industry supplying the fuel itself, criticizing refiners and retailers in recent weeks over what he has characterized as excess profit-taking amid elevated prices, even while defending the war’s underlying rationale. He has also floated renaming the Strait of Hormuz altogether.

Despite the price records, the war hasn’t kept Americans off the road. AAA projected a record 34.1 million people would travel at least 50 miles from home over Labor Day weekend, with 28.7 million of them driving, both all-time highs for the holiday, up about 2% from the year before. It’s a pattern with precedent: during both the 2012 and 2022 price spikes, record prices likewise failed to keep travelers home, even as many trimmed spending elsewhere in their trip budgets to absorb the extra cost of fuel. For now, the same appears to be happening again, drivers grumbling about $180 fill-ups in some regions, but getting in the car anyway.

There’s no clean end in sight. IEA Chief Fatih Birol has said the agency is coordinating with governments globally and stands ready to work with member countries on further coordinated emergency oil stock releases if conditions in the strait deteriorate further, building on an earlier coordinated release of strategic reserves undertaken earlier in the war. Washington has also temporarily eased sanctions on Iranian oil at sea, a move Treasury Secretary Scott Bessent said could release roughly 140 million barrels of Iranian crude onto the market, with U.S. officials at the time expressing hope, though not certainty, that the added supply could help stabilize prices within a couple of weeks. The durability of any relief has depended entirely on the state of the fighting on any given day.

With midterm elections in November, the political stakes attached to all of this are rising in tandem with the price at the pump. Sustained fuel and freight inflation is shaping up as one of the more visible pocketbook issues heading into the vote, at a moment when the administration is simultaneously defending the military campaign that triggered the shock and criticizing the industry profiting from its aftermath. For drivers from New England to Texas, the practical reality has settled into something simple, if unwelcome: this year, the war has become the dominant force setting the price at the pump.