In January, the White House announced what it described as the “largest tax refund season in U.S. history.” This declaration came in conjunction with the implementation of the One Big Beautiful Bill Act (OBBBA), which was expected to yield significant tax refund increases for American households.
However, a troubling economic outlook suggests that these anticipated savings could be eroded due to skyrocketing gas prices, primarily driven by the ongoing conflict in Iran. A recent analysis from the Stanford Institute for Economic Policy Research highlighted significant concerns that, if the Strait of Hormuz remains closed for three more weeks and oil prices peak at $110 per barrel, consumers could see gas prices reach $4.36 per gallon by May. This increase would result in an average additional expenditure of $740 for consumers, effectively negating the projected $748 increase in tax refunds for a typical household cited by the Tax Foundation.
Since late February, gas prices have risen sharply, climbing more than 90 cents to reach $3.91 per gallon, primarily following President Donald Trump’s military operations against Iran in collaboration with Israeli forces. The ensuing military actions have led to the blockade of the Strait of Hormuz, a crucial maritime passage that facilitates the export of over 20% of the world’s oil supply.
Despite fluctuations in oil prices, which have recently hovered near $100 per barrel and even surpassed $115, consumers are likely to face sustained high gas prices in the foreseeable future. Analysts from Oxford Economics project that if gas prices average around $3.60 per gallon, consumers could expend an additional $60 billion on gas by 2026, essentially offsetting the financial relief expected from tax refunds.
These elevated fuel costs disproportionately affect lower- and middle-income households, further exacerbating economic disparities. According to the report, the bottom 80% of earners allocate nearly 4% of their budgets to gas, which is nearly double the percentage spent by higher-income households. The tax cuts anticipated from the OBBBA are likely to predominantly benefit the middle- and upper-class segments of the population, deepening the existing economic divide.
The forecast suggests high gas prices are likely to persist until at least the end of the year. The Energy Information Administration (EIA) predicts average gas prices will be around $3.34 this year, dipping slightly to $3.18 in 2027. Goldman Sachs analysts also warn that if supply chain disruptions continue, oil prices could remain elevated above $100 per barrel well into the next few years.
Even if the Strait of Hormuz reopens, a return to normalcy in global oil supply will likely take time, as a backlog of tankers and damaged infrastructure could delay the rebalancing process.
To combat the rising gas prices, the Trump Administration recently announced a temporary suspension of the Jones Act, a regulation from 1920 that restricts foreign-flagged ships from transporting goods between U.S. ports. Officials believe this move could alleviate supply disruptions and potentially reduce shipping costs. However, estimates indicate that suspending the Jones Act might only lead to a minimal decrease of around three cents per gallon at the pump.
In a related effort, Vice President JD Vance has scheduled meetings with oil executives to discuss strategies for controlling escalating oil prices. Vance acknowledged the challenges consumers are facing and pledged that the administration is doing everything possible to stabilize prices and minimize their impact on American households.
