US Fuel Prices Are Surging Amid the Iran War — and the Worst May Not Be Over

Ten days ago, a gallon of regular gasoline in the United States cost $2.94. As of March 8, the AAA national average stands at $3.45 — a 17 percent increase that materialized in a single week, the steepest seven-day escalation since the early months of Russia's invasion of Ukraine. In California, drivers are paying $5.16. In Michigan, prices vaulted 56 cents in seven days. And these figures, alarming as they are, almost certainly understate the magnitude of what is unfolding: the crude oil benchmarks that will determine next week's pump prices have not yet fully worked through the refining and distribution chain. West Texas Intermediate touched $119.43 per barrel intraday on March 9, roughly 78 percent above pre-strike levels. Brent crude briefly exceeded $119.50 before retreating on reports of a G7 emergency meeting to coordinate strategic reserve releases.

The catalyst is no longer speculative. On February 28, the United States and Israel launched joint military strikes against Iran under the operational designation "Epic Fury." Supreme Leader Ayatollah Ali Khamenei was killed, along with several family members. Iran's Islamic Revolutionary Guard Corps responded by declaring the Strait of Hormuz closed to Western-affiliated shipping, backed not by a naval blockade in the traditional sense but by selective drone strikes on commercial vessels that effectively collapsed the maritime insurance market for Persian Gulf transits. The result is a supply disruption of historic proportions: approximately 20 percent of global petroleum liquids consumption — some 15 to 20 million barrels per day — is functionally stranded.

This is no longer a risk scenario buried in the appendix of an energy outlook. It is the central fact of global oil markets, and it is reshaping US fuel prices, gas station economics, and the investment calculus for petroleum retail assets in real time.

The geopolitical architecture of a supply shock

Understanding why US fuel prices are rising this fast requires understanding the peculiar mechanics of the Strait of Hormuz closure. Iran did not attempt to blockade the waterway with warships — a strategy the US Fifth Fleet could have countered relatively quickly. Instead, the IRGC executed a handful of targeted drone strikes on commercial vessels in the first 72 hours after Operation Epic Fury began. On March 1, the oil tanker Skylight was struck north of Khasab, Oman, killing two Indian crew members. The MKD VYOM was hit by a drone boat the same day. On March 2, the US-flagged Stena Imperative was struck twice while docked at Bahrain. By March 7, the IRGC had attacked the tankers Prima and Louise P with additional drones.

The physical damage was significant but limited. The strategic damage was devastating. Within 96 hours, Norway's Gard and Skuld, Britain's NorthStandard, the London P&I Club, and the American Club had all scrapped war-risk coverage for vessels transiting the Persian Gulf. Maersk, MSC, Hapag-Lloyd, and CMA CGM suspended Gulf operations. More than 150 vessels anchored outside the strait, unwilling or unable to proceed without insurance coverage. As Helima Croft, head of global commodity strategy at RBC Capital Markets, observed: "All Iran had to do was several drone strikes in the vicinity of the Strait of Hormuz. And all of a sudden, insurers and shipping companies decided that it was unsafe to traverse."

The Strait normally carries approximately 20 million barrels per day of crude oil — roughly one-fifth of global petroleum liquids consumption — and about 20 percent of global LNG trade, the vast majority of it Qatari. Saudi Arabia alone accounts for 38 percent of crude flows through the chokepoint. The alternative pipeline infrastructure that could bypass the Strait — principally Saudi Arabia's East-West Petroline and Abu Dhabi's crude oil pipeline to the Gulf of Oman — has a combined bypass capacity of roughly 2.6 million barrels per day, a fraction of normal through-strait volumes. Rystad Energy estimates the effective net loss at 8 to 10 million barrels per day of crude supply.

OPEC+ convened an emergency virtual meeting on March 1 and agreed to increase production by 206,000 barrels per day starting in April — larger than the 137,000 bpd most analysts expected, but functionally irrelevant given the scale of the disruption. The deeper problem is geometric: the roughly 3 to 3.5 million barrels per day of OPEC+ spare capacity sits overwhelmingly in Saudi Arabia and the UAE, and most of that spare capacity must transit through the very strait that is closed. As one JP Morgan analyst noted, "You can announce higher production, but if tankers face constraints in Hormuz, the physical market remains tight."

Iraq's oil output has collapsed approximately 60 percent due to conflict spillover. Kuwait has begun shutting down production from major oilfields. Qatar declared force majeure on LNG exports. On March 8, Israeli strikes hit four oil storage facilities and an oil products transfer center in Tehran and Alborz province, sending massive smoke plumes over the capital. The Trump administration has demanded Iran's unconditional surrender, with the White House indicating the campaign may run four to six weeks.

The EIA fuel price outlook was obsolete before it was published

The Energy Information Administration's February 2026 Short-Term Energy Outlook — completed on February 5, more than three weeks before the first strikes — projected Brent crude averaging $58 per barrel for 2026, with US retail gasoline prices averaging $2.91 per gallon. The EIA anticipated global oil inventory builds of 3.1 million barrels per day and expected OPEC+ to hold production flat through the first quarter. US crude production was forecast at 13.6 million barrels per day, roughly unchanged from 2025. The outlook was, by every conventional metric, bearish on oil.

To the EIA's credit, the February STEO contained a prescient caveat: "We acknowledge that actions targeting oil infrastructure or a conflict that affects flows through Strait of Hormuz could obviously reduce Middle East oil production and exports." That acknowledgment now reads less like a standard disclosure and more like the understatement of the decade. Brent crude is trading at roughly double the EIA's 2026 forecast, and the agency's projection of a well-supplied global market has been rendered moot by the single largest supply disruption since the 1973 Arab oil embargo.

The March 10 STEO release — due tomorrow — will almost certainly reflect a dramatic upward revision to price forecasts. But even the revised numbers will carry an unusually wide confidence interval. The EIA's Weekly Petroleum Status Report for the week ending February 27, released on March 4, showed US commercial crude oil inventories at 439.3 million barrels, approximately 2.7 percent below the five-year seasonal average. The Strategic Petroleum Reserve held 415.4 million barrels — about 60 percent of its 700-million-barrel capacity. Gasoline inventories stood at 253.1 million barrels, 4.4 percent above the five-year average, which provides a modest buffer but one that will erode rapidly if the Strait of Hormuz closure persists beyond mid-March.

Refinery utilization in the week ending February 20 was 88.6 percent, with crude inputs at 15.7 million barrels per day. US crude production was running at 13.696 million barrels per day, just below the record of 13.862 million bpd set in November 2025. Domestic production capacity is not the constraint. The constraint is the sudden disappearance of roughly one-fifth of global seaborne crude supply from the market, and no amount of Permian Basin output can offset that.

Gasoline prices by state reveal sharply uneven exposure

The regional dispersion of US fuel prices tells a more granular story than the national average alone, and it is a story of structural vulnerability. Based on AAA data as of March 8, the states and regions most exposed to the Iran conflict oil shock break down along predictable but instructive lines.

California sits at the extreme end, with a statewide average of $5.16 per gallon — already above the psychologically significant five-dollar threshold that tends to alter consumer driving behavior. California's exposure is threefold: the state's cap-and-trade carbon program adds roughly 15 to 20 cents per gallon to the base price; its unique fuel blend specifications limit the number of refineries that can supply the market; and its dependence on waterborne crude imports, including from the Middle East, makes it disproportionately sensitive to tanker disruption. Washington state is similarly elevated at $4.61, with Oregon at $4.19 and Nevada at $4.18.

The West Coast PADD 5 region was already the most expensive in the country before the conflict, with an EIA-reported average of $4.11 per gallon in the week ending February 23 — a figure that predates the worst of the crude spike. By the time AAA captured March 8 data, the non-California West Coast average had likely exceeded $4.50.

The Midwest presents a more complex picture. Illinois registered $3.50 per gallon on March 8, Ohio $3.43, and Michigan $3.55. These states are supplied primarily by PADD 2 refineries that process domestic and Canadian crude, offering some insulation from waterborne Middle Eastern supply disruptions. But that insulation is partial. Crude oil is a globally fungible commodity, and when Brent rises from $72 to $119 in ten days, WTI follows — even if the physical barrels flowing into Midwest refineries never transited the Strait of Hormuz. The Midwest's exposure is transmitted through the futures market, not the physical supply chain, and it is no less real for being indirect.

The Gulf Coast (PADD 3) and Texas specifically — where gasoline averaged $3.11 per gallon on March 8, among the lowest in the nation — benefit from proximity to the densest concentration of refining capacity in the Western Hemisphere. Texas's lower state fuel taxes and the Gulf Coast's access to domestically produced crude provide meaningful cost advantages. But even here, prices are up sharply from the $2.53 per gallon EIA reported for the week ending February 23.

The Northeast occupies a middle ground. New York registered $3.38 per gallon, Massachusetts $3.29, and Pennsylvania $3.57. These states face higher baseline costs due to state taxes and transportation logistics, but they are not as dependent on waterborne crude imports as the West Coast. The New York Harbor spot price for conventional regular gasoline was $2.004 per gallon as of February 20 — a figure that has almost certainly moved substantially higher in subsequent trading sessions.

What the regional data underscores is that no state is immune. The dispersion is real — California consumers are paying 67 percent more per gallon than their Kansas counterparts — but the directional movement is uniform. Every state has seen prices rise, and the magnitude of those increases is accelerating as March progresses.

Gas station margins are compressing exactly when operators can least afford it

The economics of operating a gas station in the United States have always been more precarious than consumers realize, and the Iran conflict is stress-testing those economics in ways that will separate well-capitalized operators from vulnerable ones. According to NACS data, the average gross margin on a gallon of fuel was 37.9 cents in 2023, a figure that has held above 35 cents per gallon since July 2019 — a significant improvement from the sub-20-cent breakeven margins that prevailed in 2009. But gross margin is not profit. After credit card processing fees (averaging 2.5 percent of the transaction, or roughly 8 to 10 cents per gallon at current prices), labor, rent, utilities, environmental compliance, and equipment maintenance, the net profit on a gallon of gasoline is typically 10 to 15 cents, and can shrink to as little as 3 to 7 cents per gallon at high-cost locations.

This is why the "rockets and feathers" phenomenon — first formally described by Robert Bacon in 1991 and extensively documented in the US market by Borenstein, Cameron, and Gilbert — matters so acutely right now. When wholesale fuel costs spike rapidly, as they are doing, gas station operators face an immediate dilemma. They can raise pump prices in lockstep with their replacement cost, which risks losing volume to competitors who raise prices more slowly. Or they can absorb part of the wholesale increase, preserving volume but compressing margins that are already razor-thin. The Lundberg Survey documented this dynamic in vivid detail during a 13-week crude rally in early 2024: retail margins shrank by 15.4 cents per gallon, from a relatively healthy 38.74 cents to a margin-destroying 23.2 cents, as operators struggled to pass through a WTI increase of just $6.28 per barrel.

The current crude spike dwarfs that episode. WTI has risen approximately $52 per barrel since February 28. A crude increase of that magnitude translates to roughly $1.24 per gallon of additional input cost at the wholesale level, assuming a standard refining yield. Even if only half of that increase has been passed through to rack prices — a conservative assumption given the lag between crude and wholesale markets — station operators are absorbing wholesale cost increases of 50 to 60 cents per gallon against a gross margin structure that was designed to accommodate fluctuations of 10 to 15 cents.

The margin compression falls unevenly across operator types. Branded stations — those operating under Shell, Chevron, ExxonMobil, or BP signage — typically purchase fuel through exclusive supply contracts at rack price plus transportation. During periods of margin compression, major oil companies often extend Temporary Voluntary Allowances, essentially subsidies of 2 to 5 cents per gallon designed to keep branded operators competitive. These allowances do not eliminate the margin squeeze, but they soften it. Branded operators also receive supply priority during shortages, which matters when allocation becomes a factor.

Independent operators, who constitute roughly 60 percent of all US convenience stores, enjoy no such cushion. They purchase fuel from local jobbers under shorter-term contracts with limited price protection. As OPIS, the industry-standard fuel pricing service, has noted, independent operators "usually do not get help from their supplier in times of tight supply or when margins contract." These operators are, in the current environment, absorbing the full force of wholesale cost increases with no offset beyond their own pricing discretion and in-store merchandise margins.

The hedging landscape compounds the disparity. Large chain operators — Casey's, Pilot Flying J, Murphy USA — maintain sophisticated fuel trading desks and routinely hedge significant portions of their procurement using NYMEX futures, over-the-counter swaps, and options contracts. A standard NYMEX gasoline futures contract covers 42,000 gallons, a volume that aligns with the purchasing patterns of multi-site operators but represents a disproportionately large commitment for a single-station owner pumping 120,000 gallons per month. In practice, most independent operators do not hedge at all. They manage price risk through rapid inventory turnover and daily competitive pricing adjustments — strategies that work adequately during periods of gradual price movement but offer almost no protection during the kind of vertical crude spike the market is experiencing.

The one silver lining — and it is a perverse one — is that the "feathers" side of the asymmetry will eventually work in operators' favor. If and when crude prices decline, station operators will be slow to reduce pump prices, and the resulting margin expansion can be substantial. The Bureau of Labor Statistics documented exactly this dynamic in the second half of 2014, when a 21.8 percent monthly decline in WTI translated to only a 12.2 percent decline in retail gasoline prices, generating the widest retail margins of the decade. But that payoff requires crude prices to actually fall, and the timeline for that outcome depends entirely on the trajectory of the conflict.

There is a secondary margin effect that is easy to overlook: credit card processing fees scale with the transaction amount, not the gallon count. At $3.45 per gallon, a 2.5 percent processing fee consumes approximately 8.6 cents of the operator's gross margin. If pump prices reach $4.50 — a plausible scenario if Brent sustains above $110 — that fee rises to 11.3 cents per gallon, consuming a larger share of a margin that may itself be compressing. NACS data indicates that credit card fees are already the second-largest operating expense for convenience stores after labor, and the industry paid $17.2 billion in processing fees in 2023. A sustained price spike mechanically increases that burden.

Investment and lending implications for gas station assets

The oil prices Iran conflict has generated ripple through the gas station investment landscape with a complexity that belies the apparent simplicity of the underlying business. Gas stations are among the most common categories of SBA-guaranteed lending in the United States, and the interplay between fuel price volatility, margin economics, and asset valuation creates a risk matrix that lenders and investors ignore at their peril.

The cap rate framework for gas station properties reflects a segmented market. Net-lease deals with credit-quality tenants — a Shell or Chevron on a long-term triple-net lease — were trading at cap rates in the low- to mid-5 percent range as of the Matthews 2025 Cap Rate Recap, with short-term credit-worthy leases pushing above 6 percent and smaller independent operators commanding cap rates well above 7 percent. Going-concern valuations, which encompass both the real estate and the operating business, typically carry cap rates above 9 percent, often rounded to 10 percent. A California dataset of 66 post-2013 going-concern transactions documented cap rates ranging from 3.88 percent to 23.16 percent — a dispersion wide enough to illustrate how profoundly location, brand, and operator quality affect valuation.

The sensitivity of these cap rates to fuel price disruption operates through several channels. The most direct is cash flow compression: if a station's gross fuel margin falls from 38 cents to 23 cents per gallon during a sustained crude spike, and throughput volume declines even modestly due to demand elasticity (the short-run price elasticity of gasoline demand is approximately -0.1, meaning a 10 percent price increase reduces demand by about 1 percent), the station's net operating income can decline by 20 to 30 percent. For a property valued at a 7 percent going-concern cap rate, a 25 percent NOI decline implies a roughly 25 percent decline in asset value — a swing that can push debt service coverage ratios below lender thresholds.

SBA lending for gas stations currently operates at rates of 9.00 to 9.75 percent for 7(a) loans above $350,000, based on the current WSJ Prime Rate of 6.75 percent plus a maximum spread of 3 percentage points. SBA 504 loans offer fixed rates tied to the 10-year Treasury, typically in the 5 to 7 percent range. Because gas stations are classified as single-purpose properties under SBA guidelines, 504 borrowers must put down at least 15 percent equity for expansion projects and 20 percent for startups or borrowers with existing SBA debt. These are meaningful equity requirements, and they provide a buffer — but not an unlimited one — against asset value declines driven by margin compression.

The environmental due diligence layer adds further friction. SBA Standard Operating Procedure 50 10 8 requires a Phase I Environmental Site Assessment for all gas station loans regardless of amount, and many lenders interpret the guidelines as requiring Phase II assessments (soil and groundwater testing) for stations older than five years. Following the EPA's May 2024 CERCLA designation of PFOA and PFOS as hazardous substances, PFAS evaluation has become an additional component of Phase I assessments. Remediation costs for petroleum releases can range from tens of thousands to millions of dollars, and the SBA will not approve loans for contaminated properties unless the risk is adequately addressed. In a volatile price environment, the incremental time and cost of environmental compliance — typically 60 to 90 days for the full assessment process — can become the factor that kills a transaction.

For commercial real estate investors evaluating gas station portfolios, the current environment presents a paradox. The industry's long-term structural headwinds — declining per-capita gasoline consumption (down 4.5 percent from the 2018 peak despite 18 percent population growth), rising EV adoption (8 percent of new vehicle sales in 2024), and improving fleet fuel efficiency (28.1 MPG for the 2025 model year, a 43 percent improvement over 25 years) — argue for conservative underwriting of fuel volumes over a typical holding period. But the short-term dynamics of the Iran conflict could, counterintuitively, benefit well-positioned operators if the "feathers" phase of the margin cycle materializes on the back end of the crisis. The M&A market has already cooled: convenience store transaction volume declined 35.7 percent year-over-year through mid-2025, and EV/EBITDA multiples have contracted from 11.9x in the 2018–2021 period to 10.1x in the 2022–2025 period. Distressed sellers may emerge if the crude spike persists, creating acquisition opportunities for buyers with the capital and operational expertise to weather margin volatility.

Three scenarios for what comes next

The forward trajectory of US fuel prices amid the Iran war depends almost entirely on the duration and scope of the Strait of Hormuz closure, and the honest analytical answer is that the range of outcomes is wider than at any point since the 1970s.

The base case — which reflects the current implied probability in crude futures markets — assumes the conflict runs four to six weeks, consistent with the White House's stated timeline. Under this scenario, Brent crude sustains in the $95 to $115 per barrel range through late March and into April, with intermittent spikes above $120 on adverse headlines. US retail gasoline prices reach $4.00 to $4.25 per gallon nationally by mid-March, with California approaching $5.50 to $6.00. The G7 coordinates a strategic reserve release of 300 to 400 million barrels, which stabilizes prices near the top of this range without driving them materially lower. Gas station margins compress by 10 to 15 cents per gallon on average, with independent operators bearing disproportionate pain. Gasoline demand declines 2 to 3 percent as consumers consolidate trips and reduce discretionary driving. SBA lenders tighten underwriting standards for new gas station loans but do not halt origination. Cap rates for going-concern gas station transactions widen by 50 to 100 basis points. The EIA's March 10 STEO revision projects Brent averaging $80 to $90 for 2026, with gasoline at $3.40 to $3.60 — roughly double the February forecast.

The bull case (worst case for consumers) envisions a full, prolonged Strait of Hormuz disruption lasting beyond six weeks. If diplomatic resolution fails, if the conflict escalates further — perhaps through direct attacks on Saudi or Emirati export infrastructure — and if the Strait remains effectively closed through April, the oil market enters territory that has no modern precedent. Kpler analyst Homayoun Falakshahi has warned that oil could reach $150 per barrel by end of March under this scenario. Qatar's Energy Minister Saad al-Kaabi told the Financial Times on March 7 that all Gulf exporters could declare force majeure within days. At $150 Brent, US retail gasoline prices would likely reach $5.00 to $5.50 nationally, with California potentially approaching $7.00. The IMF estimates that every sustained 10 percent rise in oil prices adds approximately 0.4 percentage points to inflation and subtracts 0.15 percentage points from global GDP growth. At $150 Brent — more than double the pre-conflict level — the macroeconomic feedback effects become severe: consumer spending contracts, recession risk escalates, and the Federal Reserve faces an impossible choice between fighting inflation and supporting growth. Gas station operators would face acute margin compression in the near term but could benefit substantially from the "feathers" effect if prices eventually decline. Asset values for petroleum retail properties would likely decline 10 to 20 percent as lenders reprice risk across the sector.

The bear case (best case for consumers) assumes a relatively rapid diplomatic resolution — perhaps brokered through Chinese intermediation, given Beijing's status as Iran's primary crude buyer and its demonstrated ability to transit the Strait even during the closure. If the new Iranian Supreme Leader, Mojtaba Khamenei, signals willingness to negotiate, and if Strait transit resumes within two to three weeks, crude prices could retreat to the $75 to $85 range by late March. US Energy Secretary Chris Wright has characterized any price increase as "temporary," stating that "in the worst case this is weeks, not months." Under this scenario, retail gasoline prices would peak near current levels ($3.40 to $3.60) and begin declining by late March, returning to the $3.00 to $3.20 range by mid-April. Gas station operators would experience a brief but profitable "feathers" phase as pump prices decline more slowly than wholesale costs. The EIA fuel price outlook would require only modest revision. Lending and investment activity in the gas station sector would resume normal patterns within one to two quarters.

The variable that matters most is not military but actuarial. As long as maritime insurers refuse to underwrite Persian Gulf transits, the Strait remains functionally closed regardless of what navies do. The Trump administration's March 6 announcement of a $20 billion reinsurance program through the Development Finance Corporation was a recognition of this reality, but JP Morgan estimated that total insurance coverage needed for Gulf shipping amounts to approximately $350 billion — nearly 18 times the program's size. Until insurance markets reopen, the physical flow of oil through the world's most critical chokepoint will remain a fraction of its pre-conflict volume, and US fuel prices will continue to reflect a global market that is structurally undersupplied by the largest margin in half a century.

For consumers, the practical implication is straightforward: plan on paying more at the pump for at least the next several weeks, with the national average likely approaching or exceeding four dollars per gallon. For gas station operators, the imperative is equally clear: preserve liquidity, manage inventory turnover aggressively, and resist the competitive temptation to absorb wholesale cost increases that your margin structure cannot sustain. For lenders and investors, the signal is to stress-test every gas station underwriting model against a scenario where Brent sustains above $100 for 60 to 90 days — because that scenario is no longer a tail risk. It is the market's central expectation.

March 9, 2026 by a collective of authors at MMCG Invest, LLC, gas and fuel station feasibility study consultant, serving SBA feasibility studies for gas stations

Sources:

• AAA State Gas Price Averages — gasprices.aaa.com/state-gas-price-averages/

• CNBC — WTI oil prices jump on fears Iran retaliation (Mar 1, 2026)

• CNBC — The Strait of Hormuz crisis explained (Mar 2, 2026)

• NPR — How traffic dried up in the Strait of Hormuz (Mar 4, 2026)

• Fortune — OPEC+ to resume oil output increases as Iran conflict rages (Mar 1, 2026)

• Fortune — Iraq and Kuwait oil production shutdowns widen Iran war impact (Mar 7, 2026)

• Axios — Oil tops $100 a barrel as Iran war escalates (Mar 8, 2026)

• Bloomberg — US Launches $20 Billion Reinsurance Plan for Gulf Oil Trade (Mar 6, 2026)

• EIA Short-Term Energy Outlook — eia.gov/outlooks/steo/

• EIA Weekly Petroleum Status Report — eia.gov/petroleum/supply/weekly/

• EIA Retail Prices for Regular Gasoline — eia.gov/dnav/pet/pet_pri_gnd_a_epmr_pte_dpgal_w.htm