A Market on a Roller Coaster
Oil markets have been on a wild ride. Since late February, when conflict between the United States and Iran began escalating, crude prices have swung dramatically from the low 80s up to around 120 dollars per barrel. This volatility is far more than a passing headline — it reflects a structural reshaping of global energy flows that will continue to ripple through the economy for some time to come.
The instinct of many analysts is to frame the spike purely as a production problem, but that framing misses the fundamental issue. What's really driving sustained higher prices is a combination of production constraints, infrastructure limitations, and transportation bottlenecks. With the Strait of Hormuz effectively closed off as a reliable shipping corridor, refiners around the globe cannot get the crude they need. The result is not a brief disruption but a prolonged period of elevated prices, magnified by a risk premium that the market has now priced in at a far higher level than it ever did during the Russia–Ukraine shock. The impact of what is happening at the Strait is materially larger than what unfolded with Russia and Ukraine, and the market is reflecting that reality.
The Inflation Spillover
The energy story is bleeding directly into broader inflation data. Recent producer price index numbers showed significant upward movement not only in energy components but also in the ex-energy figures, suggesting that elevated fuel costs are already filtering through into the cost structures of producers across the economy. When energy gets more expensive, virtually every good and service that requires shipping, manufacturing, or refrigeration becomes more expensive too. This is the kind of broad-based inflation pressure that proves difficult for policymakers to unwind, especially when its root cause sits outside the reach of domestic policy levers.
Memorial Day, Summer Travel, and Consumer Behavior
Despite punishing prices at the pump, Americans are unlikely to surrender their summer holidays. There are only three real summer holidays each year, and consumers tend to protect them fiercely. What we are likely to see instead is a cascade of secondary substitutions. Consumers will still hit the road, but they will make subtle adjustments: choosing quick-service restaurants over sit-down ones, swapping a movie outing for putt-putt golf, spending less inside the convenience store on the way out of town, taking the trip to the cottage but leaving the boat docked. Gasoline demand is somewhat inelastic — particularly during summer — so we should not expect dramatic demand destruction, but there is already a measurable pinch. Demand has eroded by roughly eight percent over the last four weeks compared to last year.
The pivotal question is whether the national average price starts with a four or a five. The longer the Strait remains closed, the more likely it becomes that the national average could reach record levels, which would trigger genuine anxiety and meaningful behavioral changes across the consumer base. For now, the road trips will continue — accompanied by a great deal of complaining.
The Jet Fuel Squeeze and the Airfare Problem
The more intense concern lies in the jet fuel market. Refinery shutdowns concentrated in Kuwait, China, and South Korea have constrained global jet fuel supply just as summer travel ramps up. The result is that airline ticket costs are poised to climb steeply, forcing families to make hard choices about whether to drive or fly. For a family of six contemplating a long trip — say, from Houston to Colorado — the math changes quickly when airfares spike. The shorter travel time of a flight may still command a premium worth paying, but for many households the calculation is becoming much closer.
Europe faces an even more acute version of this problem. Major carriers, including Air France and Lufthansa, are at risk of cancelling flights simply because they may not have the jet fuel to operate them. For travelers with critical plans — visiting an aging family member, attending an important event, or simply enjoying a long-anticipated vacation — last-minute flight cancellations are not an inconvenience but a serious disruption.
Energy-Rich but Infrastructure-Constrained
There is a striking paradox at the heart of the United States energy picture: the country is energy-rich but infrastructure-constrained. The conversations happening in Silicon Valley and in corporate boardrooms about hyperscalers and the roughly 500 billion dollars in proposed capital expenditure projects for AI infrastructure are all predicated on having reliable access to power that can do what these projects require. That is a cautious assumption to make. None of these projects can proceed at scale, and none of the lofty future earnings forecasts that underpin current equity valuations can materialize, without the underlying power generation and transmission capacity being in place.
This reveals a smarter way to think about investing in the AI boom. Rather than paying 40 or 50 times earnings for chip companies, the more durable opportunity may lie in the power and energy markets themselves. AI has driven an essentially unprecedented surge in power demand. Growth is climbing sharply across basically every form of energy — renewables, traditional fossil fuels, and nuclear alike. Without reliable, abundant, dispatchable power, the most advanced silicon in the world is just an expensive paperweight.
The Federal Gas Tax Suspension Debate
In response to consumer pain, there has been political discussion of suspending the federal gas tax. Any reduction at the federal level would need to clear Congress, which has been a notoriously difficult chamber to move recently. There appears to be bipartisan interest in pushing forward a suspension, but execution is another matter.
Even if it passes, the relief would be modest. The federal gas tax sits at 18 cents per gallon — a figure that has not changed since 1993 — and with the national average rising above 4.50 a gallon, an 18-cent reduction is closer to salt in the wound than meaningful relief. Average prices are still running roughly 1.20 a gallon above where they were last year, a gap dwarfing anything a federal tax suspension could address. The real driver of relief, or further pain, remains the situation at the Strait of Hormuz.
States have been more aggressive. Indiana has waved its excise and use taxes on gasoline, giving Hoosiers a 60-cent-per-gallon drop in price — a far more substantive intervention. The federal proposal is something, but it is not the kind of relief consumers are looking for.
Up Like a Rocket, Down Like a Feather
A final and familiar truth lingers over the whole conversation. When global tensions eventually ease and crude prices come down, gas prices at the pump will descend much more slowly than they rose. Perhaps 100 dollars per barrel becomes the new floor, perhaps not, but the well-worn pattern holds: prices climb faster than they fall. Until the geopolitical pressure releases, consumers, airlines, refiners, and entire industries dependent on cheap and reliable energy will continue to absorb the cost — and the broader economy will continue to feel the reverberations of an oil shock whose full impact has yet to play out.