The Iranian war and high oil prices are affecting consumers. Here’s how

NEW YORK (AP) — As the war in Iran escalates, the price of crude oil fluctuates sharply. Consumers are already feeling the effects of war and its destabilizing impact on energy production around the world.

Gasoline prices are rising, and many people will find some of their most pressing economic problems at the gas station.

Read more: Inflation stabilized last month before the attack on Iran led to higher energy costs

But you don’t have to drive a car to be affected. Almost all goods – including food – that are bought and sold must move from where they are produced. These costs will rise as the prices of gasoline, diesel and jet fuel rise.

High oil prices – which exceeded $110 a barrel and then fell – are likely to be a big factor in inflation in the United States. As the war continues, some experts say the price of everything could be affected.

“The longer this goes on, the more significant the shock will be,” said Gregory Daco, chief economist at consulting firm EY-Parthenon.

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Here’s how the rising cost of oil and gas could affect consumers as the war continues.

At the pump: Gas prices will likely continue to rise

Gasoline, diesel, and jet fuel are made from crude oil. As the cost of crude oil rises, so do the prices of those widely used products that keep equipment, cars, buses, delivery trucks and airplanes running.

Across the United States, drivers were paying an average of $3.58 per gallon of regular gasoline on Wednesday, compared to $2.98 before the war began. Prices have risen by about 20% since the United States and Israel attacked Iran.

Read more: War with Iran leads to higher oil prices and another shock to the global economy

Prices vary across states. In California, drivers paid $5.34. Some California refineries have closed in recent years, so the huge state relies on imports of gasoline and other refined products from Asia.

By contrast, the average price in Louisiana, which has oil production and refineries, was $3.20.

Higher oil prices are likely to push gasoline prices even higher, and could be felt more in Asia and Europe, which rely on Middle Eastern oil and gas more than the United States.

The cost of freight and goods rises as the price of diesel rises

The price of diesel – used by 18-wheel trucks – is also rising: to $4.83 a gallon in the United States, a 28% jump since the war began.

“I cannot stress what a huge shock this has been to the logistics, trucking and (agriculture) sectors,” Patrick De Haan, an oil analyst at GasBuddy, wrote on Monday.

The virtual closure of the Strait of Hormuz, the waterway that transports a fifth of the world’s crude oil and liquefied natural gas, has already caused problems for the shipping industry. The rapid rise in oil and gas prices will add to the burden.

Fuel prices account for 50% to 60% of the total operating cost of shipping goods by ship, according to Patrick Benfield, professor of supply chain practice at Syracuse University, so high fuel prices are having a big impact on the industry.

“When fuel prices start going up, everything starts to slow down,” Benfield said. “So your ships are slowing down, your trucks are slowing down. People are less inclined to ship things by air. It kind of puts a drag on the economy when fuel prices go up.”

Fuel surcharges will also rise – as shipping companies aim to pass on the higher costs to their customers, ultimately making goods more expensive.

Home energy bills will likely rise, and items made of plastic may cost more

It is also likely that the cost of heating your home and cooking food with natural gas will become more expensive as the war continues.

The benchmark price of natural gas in Europe has risen by 75% since the start of the war, according to data from the Intercontinental Exchange.

This can also affect the cost of products made from natural gas, such as petrochemical raw materials. It is used to make plastics and rubber, as well as nitrogen fertilizers.

Ultimately, groceries may be more expensive, too

The rise in oil prices likely won’t be immediately felt in U.S. grocery stores, said David Ortega, a professor of food economics and policy at Michigan State University. But he added that if oil prices remained high for a month or more, “we would be in a different area.”

Ortega said that high oil prices affect the agricultural sector in two ways. They raise the cost of inputs such as fuel for agricultural equipment and fertilizers derived from natural gas. It also increases demand for soybean oil, palm oil and other vegetable oils that can be used as an alternative to petroleum fuels.

But Ortega said on-farm costs are only a small fraction of what consumers pay at the supermarket. The largest share comes from the cost of food processing and transportation, which consumes a lot of energy.

“Food gets to the grocery store with diesel, whether it’s on a truck or on a boat,” Ortega said.

If oil prices remain high, Ortega said, fresh foods that must be transported quickly could see prices rise more quickly than packaged foods, which are less perishable.

If inflation rises, everything becomes more expensive

With US oil prices rising nearly 42% from pre-war levels, to nearly $95 a barrel from about $67 before the conflict, this could push US inflation up from 2.4% in January to 3% or higher in the coming months, according to a rough estimate by economists at JP Morgan.

Economist Daco, of EY-Parthenon, estimated that the rise in gas prices could push monthly inflation as high as 1% in March, which would be the highest monthly increase in four years. The annual inflation rate will be close to 3% in this case.

“This is a huge shock in itself,” Daco said.

Some experts say consumer spending will decline

Mark Matthews, chief economist and executive director of research at the National Retail Federation, said higher gas prices will likely impact consumer spending, especially low-income shoppers.

He said American families pay an average of $2,500 a year, or roughly $50 a week, to fill their tank. He said that if consumers were paying, for example, $10 more per week, their budgets would certainly be affected.

“How do they make up for it?” He said. “Going out to the movies, going to a park, going out to eat — all of those areas are going to be … likely going to see reductions.”

Some see hope that prices will remain low for the time being

Matthews expects retailers to absorb higher transportation costs for a while – as many have done with rising tariffs – before raising prices.

Italian Finance Minister Giancarlo Giorgetti warned against burdening consumers with high energy costs, recalling the lessons learned after Russia’s invasion of Ukraine.

“We must act immediately to prevent the spread of energy prices to all consumer goods, as happened in 2022,” he said at a G7 meeting on Monday in Brussels, according to a statement from his office.

Shipping companies won’t pass on costs to customers right away, said Ed Anderson, a professor of supply chain and operations management at the University of Texas McCombs School of Business.

“If the conflict is only short-term, it will be eaten up by companies,” he said.

Rugaber reported from Washington. Associated Press journalists Nicole Winfield in Rome, Dee Ann Durbin in Detroit and Anne DiNuccinzio in New York contributed to this report.