Rising oil prices could erase what Americans gained from tax cuts

Analysts warn gas costs may offset savings

Wall Street firms say the U.S.-Iran war could take back what Americans expected to save from the One Big Beautiful Bill Act.

Raymond James strategist Tavis McCourt estimated that a $20-per-barrel jump in oil prices could add about $150 billion to what consumers spend on gasoline.

The Tax Foundation put the law’s individual tax cuts at about $129 billion for 2025. In other words, the extra cost at the pump could outweigh the tax savings entirely.

Raymond James breaks down the math

McCourt built his estimate from what he calculated as more than $420 billion in consumer gasoline spending during the fourth quarter of 2025.

He factored in lower demand at higher prices and the pressure on companies to protect their profit margins. His takeaway: a sustained $20 jump in oil prices roughly cancels the financial benefit of the tax law.

Other firms ran their own numbers using different methods, but several landed in the same neighborhood.

Oil jumped more than 30% after strikes

U.S. oil closed at about $67 per barrel on Feb. 27, just before the conflict started. The U.S. and Israel launched joint strikes on Iran the next day.

Prices surged more than 30% in the days that followed, briefly getting close to $120 per barrel before pulling back.

As of this week, oil remains well above $80 per barrel, still more than $20 higher than where it stood before the war began.

Iran shut down a critical shipping lane

Iran effectively closed the Strait of Hormuz, a narrow waterway that carries about 20% of the world’s daily oil supply.

Tanker traffic through the strait has largely stopped because of safety risks and attacks on vessels. The ripple effects go beyond Iran.

Several major oil-producing countries, including Iraq and Kuwait, have cut production because their storage is filling up with nowhere to ship the oil.

Gas prices climbed nearly 50 cents in days

The national average price of gas jumped from about $3 per gallon before the strikes to about $3.48 as of this week, according to AAA.

That is a rise of roughly 48 cents in just over a week. California drivers face the steepest prices in the country, paying an average of about $5.20 per gallon.

The typical U.S. household spends about $2,500 a year on gasoline, and a 20% price bump adds roughly $10 per week to that bill.

Three firms see the same risk

Evercore ISI calculated that if oil stays near $100 per barrel, higher gas prices would cancel out refund benefits for most Americans, with only the top 30% of earners still coming out ahead.

Wolfe Research reached a similar conclusion but said oil would need to stay above $100 for an extended stretch to fully erase the tax gains.

Raymond James pegs the threshold lower, at just a $20-per-barrel increase from pre-war levels. Different methods, different numbers, same warning.

Oil shock hits during refund season

The timing makes things worse.

Citadel Securities estimated that only about 30% of annual tax refunds had gone out by March 1. The bulk of refunds are expected to land over the next two months, reaching about 75% by May 1.

So the oil shock is hitting right as consumers are set to receive those larger-than-usual checks. The money that was supposed to boost spending may instead go straight to the gas pump.

Some say the economy can absorb it

Not everyone sees disaster ahead.

McCourt said the economy could handle higher oil prices and weaker-than-expected stimulus as long as the labor market holds up. He pointed out that the U.S. has never had a sustained drop in consumer spending without major job losses.

Dan Niles of Niles Investment Management noted that oil hit similar levels in 2022 and 2023, and the recession everyone predicted never showed up.

Past wars suggest months of high prices

History offers a rough guide. McCourt noted that after the 1990 Gulf War, oil prices took about six months to return to pre-conflict levels.

A similar pattern followed Russia’s 2022 invasion of Ukraine. If that holds, consumers could face high gas prices well into the fall.

President Donald Trump has described the oil price increase as short-term, but his defense secretary indicated the conflict would continue until Iran is decisively defeated.

Higher oil complicates the Fed’s next moves

Rising energy prices feed inflation, and that puts the Federal Reserve in a tough spot.

The Fed is already split between those who want to cut rates to help a weakening job market and those still worried about rising prices.

Wolfe Research estimated a $20-per-barrel oil increase could add 0.4 percentage points to headline inflation and shave 0.1% off GDP. February payrolls showed a surprise decline of 92,000 jobs, the first negative reading in years.

Several options could ease the pressure

If the war ends quickly and the Strait of Hormuz reopens, oil prices could drop back toward pre-war levels. The G7 has discussed a coordinated release of strategic petroleum reserves to bring prices down.

The U.S. has offered insurance and potential naval escorts to ships in the Persian Gulf, though how well those measures work remains unclear.

The Trump administration also issued a 30-day sanctions waiver to let Indian refiners buy more Russian oil as an alternative source.

How long this lasts depends on the war

If oil stays above about $87 per barrel, a $20 increase from pre-war levels, the extra gasoline costs for American households could roughly cancel out their tax savings, according to Raymond James.

At $100 per barrel, Evercore ISI estimates most Americans except higher earners would lose more at the pump than they gain from the tax law.

How long prices stay elevated depends on the war’s duration and how quickly shipping through the Strait of Hormuz resumes.

This article was created with AI assistance and human editing.

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