Iran War Gas Price Surge Eroding Trump Tax Refund Benefits

The White House celebrated what it called the "largest tax refund season in U.S. history" in January, crediting the One Big Beautiful Bill Act for putting hundreds of extra dollars in Americans' pockets. Two months later, those dollars are evaporating at the pump. Since U.S. and Israeli forces struck Iran on February 28, the national average gasoline price has climbed from roughly $2.92 per gallon to $3.94 as of March 22 — an increase of more than a dollar in under four weeks [1][2]. Oxford Economics estimates that if prices average $3.60 per gallon for the year, consumers will collectively spend $60 billion more on gasoline in 2026, "almost exactly offsetting the boost from refunds" [1].

The collision between a wartime energy shock and a signature domestic policy achievement raises a question neither the administration nor its critics can easily dismiss: are Americans actually better off?

The Tax Refund Promise

The One Big Beautiful Bill Act, signed into law on July 4, 2025, extended and expanded several provisions of the 2017 Tax Cuts and Jobs Act while adding new benefits. Key changes for tax year 2025 include a no-tax-on-tips deduction of up to $25,000, a no-tax-on-overtime deduction of up to $12,500, an increased Child Tax Credit raised to $2,200 (indexed to inflation going forward), and a new $6,000 deduction for seniors [3][4].

The Tax Foundation estimates the law reduced individual income taxes by $129 billion for 2025, with up to $100 billion expected to show up as higher refunds during the current filing season [5]. IRS data through March 13 showed average refunds running about $360 higher than the prior year — roughly 11% more [1]. Americans for Tax Reform projected average refund increases between $300 and $1,000, depending on household circumstances [6].

For a median-income household, the overall average tax cut works out to about $611, or a 0.8% increase in after-tax income [3].

The Gas Price Shock

The arithmetic of those gains began to unravel the moment the Strait of Hormuz closed on March 4, 2026. Iran's Islamic Revolutionary Guard Corps blocked the waterway through which roughly 20% of global oil supply transits daily [7]. The resulting disruption — the International Energy Agency called it the largest to global oil supply in history — sent Brent crude past $120 per barrel and WTI crude above $98 before partially retreating [8][9].

Source: EIA / AP / Fortune

Data as of Mar 22, 2026CSV

At the retail pump, the national average hit $3.94 per gallon on March 22, up from $2.92 in late February [2]. Fortune reported that if the Strait of Hormuz remained closed for three weeks and oil stayed above $110 per barrel, the typical household would spend approximately $740 more on fuel this year — nearly matching the projected $748 tax refund increase almost dollar for dollar [1].

The numbers get worse if prices climb further. Analysts at multiple firms project gas could peak near $4.36 per gallon by May [1]. At that level, sustained for six months, the typical household would face about $750 in additional fuel costs alone — and roughly $600 more across other goods and services as higher transportation costs ripple through supply chains, for a total additional burden of around $750 in the near term [2].

Who Gets Hit Hardest

The burden of higher gas prices falls unevenly across income levels, geography, and household structure.

By income: The bottom 80% of American earners spend close to 4% of their household budgets on gasoline — nearly twice the share paid by the top quintile [1]. The lowest-income fifth of households spend 3.4% of total expenditures on fuel, compared with 2.3% for the highest-income fifth [10]. A $740 annual increase in gas costs represents a far larger share of a $35,000 income than a $150,000 one.

By geography: Rural households drive longer distances, rely on older and less fuel-efficient vehicles, and have few or no public transit alternatives [11]. Driving behavior data from Arity shows that by early March 2026, residents of lower-income counties had already begun cutting miles driven, while drivers in higher-income areas continued at normal rates — a real-time marker of financial strain [12]. In commuter-heavy suburban districts, the "transit premium" — the cost advantage of living near public transportation — has widened sharply [13].

By region: California gasoline prices surged above $5 per gallon during the second week of March [7]. Senate battleground states with long commuting distances, including Pennsylvania, Michigan, and Wisconsin, are experiencing some of the steepest effective cost increases, drawing attention from both parties ahead of the 2026 midterms [14].

The Causal Chain: From Tehran to the Gas Station

Attributing the entire gasoline spike to the Iran conflict requires scrutiny.

The direct mechanism is clear: Iran closed the Strait of Hormuz after U.S.-Israeli strikes began on February 28. The strait handles roughly 17 million barrels of oil per day. By March 12, collective production losses from Kuwait, Iraq, Saudi Arabia, and the UAE reached at least 10 million barrels per day as Gulf state export infrastructure was disrupted or rerouted [8][9]. The IEA projected global supply would fall by 8 million barrels per day in March [9].

Alternative routes have limited capacity. Saudi Arabia rerouted some exports to its Red Sea port of Yanbu via the East-West Pipeline; the UAE used its Abu Dhabi pipeline to Fujairah. Combined, these alternatives handle 7 to 8 million barrels per day — less than half of normal Hormuz traffic [15]. Many tankers are now routing around the southern tip of Africa, adding weeks of transit time.

OPEC+'s response has been modest. An emergency session on March 1 produced a production increase of only 206,000 barrels per day, far below the millions displaced [15]. Total OPEC spare capacity of 4 to 5 million barrels per day cannot cover the shortfall under any realistic scenario [15].

Other contributing factors preceded the conflict. WTI crude had already risen from about $57 in early January to $67 by late February — a pre-war increase driven partly by seasonal demand and post-pandemic supply dynamics [16]. Strategic Petroleum Reserve levels remained depleted after large releases in 2022, limiting Washington's ability to cool prices through drawdowns [15]. Domestic refining capacity, which has declined since 2020, also constrains how quickly crude oil can become gasoline regardless of global supply [7].

Still, the scale and speed of the post-February 28 surge — WTI nearly doubling from $67 to over $98 in two weeks — makes the Iran conflict the overwhelmingly dominant factor in the current price environment [16].

Source: FRED / Federal Reserve Bank of St. Louis

Data as of Mar 18, 2026CSV

Historical Precedents

The 2026 oil shock joins a series of energy crises linked to Middle Eastern conflict. Each offers partial parallels but distinct lessons.

1973 OPEC embargo: Oil prices quadrupled from $3 to nearly $12 per barrel. The embargo produced gasoline lines, a deep recession, and stagflation that persisted for years [17].

1979 Iranian Revolution: Crude rose to $39.50 per barrel within a year. Consumers faced implicit costs of 6% to 33% in added queue time. Inflation and recession followed [17].

1990 Gulf War: Oil spiked briefly from $17 to $36 per barrel. The disruption was shorter — Kuwait's production was restored within months — and the economic impact was relatively contained [17].

2008 commodity spike: Oil hit $145 per barrel ($215 in inflation-adjusted terms) in July 2008. The damage to household purchasing power was real but overshadowed by the concurrent financial crisis [17].

2022 Russia-Ukraine surge: WTI jumped from $71 to $109 per barrel between December 2021 and May 2022. Real wages declined at a pace not seen since 1979-81. The shock contributed roughly one percentage point to headline inflation in Q1 2022 [17].

The 2026 disruption has already exceeded the 2022 surge in both speed and scale. The Strait of Hormuz closure affects a larger share of global supply than any single prior event. Recovery timelines from previous crises suggest that even after a ceasefire, it takes months for shipping patterns, insurance markets, and production schedules to normalize [8].

Were the Tax Cuts Worth What They Claimed?

The political framing of "gas prices erasing tax refunds" implicitly assumes the refunds were substantial. The evidence is more complicated.

The 2017 Tax Cuts and Jobs Act reduced taxes across income levels, but the distribution was sharply tilted. The Congressional Budget Office estimated the law added $1.9 trillion to federal deficits over 2018-2028 [18]. The Tax Policy Center found that the top 20% of earners received approximately 65% of the total tax savings [18]. Households in the 95th to 99th income percentiles received an average cut of nearly $13,000 — more than triple the roughly 1% income gain for the bottom 60% of earners [19].

Defenders of the law point to IRS data showing that filers earning $15,000 to $50,000 received a 16% to 26% reduction in their tax bills in 2018, and that taxpayers earning under $100,000 saw an average 16% cut [20]. They also cite a $5,000 increase in real median household income during the Trump administration, though attributing that entirely to the tax law is contested [20].

The One Big Beautiful Bill Act extended the TCJA's individual provisions (which were set to expire after 2025) and added new benefits targeting tip and overtime earners. But the average tax cut of $611 per household is modest in absolute terms. For workers not earning tips or overtime and without children, the incremental benefit over the TCJA baseline may be smaller still [3][5].

The central irony: the households most likely to see their tax savings fully consumed by gas prices — lower-income families spending 4% of their budgets at the pump — are the same households that received the smallest absolute dollar benefits from either tax law.

Public Opinion: The Price of War

Americans are not enthusiastic about the trade-off.

A Reuters/Ipsos poll found just 29% approve of the strikes on Iran [21]. A CNN poll in early March showed nearly 60% disapproved of the military action [22]. A Yahoo/YouGov survey found 80% of Americans consider gas prices already too high, 67% expect them to rise further, and 60% blame Trump for the increases [23].

The partisan divide is stark. Republicans broadly support the president's handling of the conflict, with MAGA-aligned voters expressing confidence that the war strengthens U.S. strategic position [24]. Democrats and independents overwhelmingly disapprove, and a majority say the conflict reduces American safety in both the short and long term [24].

Even among some supporters, the gas price issue rankles. In Halifax, Pennsylvania — where Trump won 75% of the vote in 2024 — resident Jim Matter told NBC News he believes the war is worth the spike because "if they get nuclear weapons, we might not even be here in a couple years" [25]. But such views appear to be a minority position even within Trump's base when gas prices are framed in dollar terms.

A CBS News poll of 3,335 adults conducted March 17-20 found recession concerns trending upward, with a majority believing the war will weaken the economy in the short term [24].

What Comes Next

The trajectory depends on variables that remain uncertain: the duration of Strait of Hormuz disruption, the pace of military operations, and whether IEA member states coordinate strategic petroleum reserve releases or engage in competitive drawdowns that amplify volatility [15].

If gas prices average $3.60 for the year — a scenario Oxford Economics considers plausible even with partial Hormuz reopening — the aggregate $60 billion consumer gasoline cost increase offsets the $100 billion in projected tax refund gains by roughly 60% [1][5]. If prices average above $4 per gallon for an extended period, the offset becomes complete for most households and punitive for low-income families.

The political implications are already materializing. Senate battleground races in Pennsylvania, Michigan, and Wisconsin are seeing both parties recalibrate messaging around affordability [14]. The administration faces the uncomfortable reality that its most visible domestic economic achievement — bigger tax refund checks — is being repriced in real time at every gas station in the country.

For the median American household, the math is straightforward. An extra $611 in tax savings minus $740 in additional fuel costs equals a net loss of $129. The promised windfall is not just smaller than advertised — for many families, it has already turned negative.