Key Takeaways:
Prediction markets now assign an 88% probability that U.S. gasoline prices will exceed $4 a gallon by the end of July as military strikes against Iran disrupt crude flows through the Strait of Hormuz.
U.S. gasoline prices are poised to breach $4 a gallon for the first time in two months after American forces launched a wave of strikes against Iran, escalating a conflict that has choked the Strait of Hormuz and pushed crude oil higher.
"Gas could average over $4 a gallon over the next week," said Patrick DeHaan, head of petroleum analysis at GasBuddy. He added that diesel fuel is likely to cross $5 a gallon by Friday.
The national average for regular gasoline stood at $3.89 a gallon Wednesday, up 10 cents over the past week and 91 cents above the $2.98 prewar price before fighting began in March, according to AAA. Diesel fuel, crucial to transportation and industry, was $4.94, well above the $3.76 prewar level. West Texas Intermediate crude rose 1.2% to $80.25 a barrel Wednesday, while Brent crude gained 1.1% to $85.65.
The renewed surge in fuel costs threatens to reverse the relief U.S. drivers got in June, when producer prices unexpectedly declined 0.3% as energy costs moderated. With the Strait of Hormuz handling about 21% of global oil trade, any prolonged disruption could push gasoline toward the 2026 high of $4.56 set on May 21 — and complicate the Federal Reserve's inflation fight ahead of its July 28-29 meeting.
Kalshi traders now see a 63% probability that the national average will exceed $4.10 a gallon by the end of July, according to data from the prediction market platform. The highest national average this year was $4.56 on May 21, a level reached during the initial escalation of U.S.-Iran hostilities. The current trajectory suggests that record could be tested again if the Strait of Hormuz remains disrupted.
The waterway, a narrow passage between the Persian Gulf and the Gulf of Oman, carries roughly a fifth of the world's petroleum consumption. U.S. Central Command said Wednesday it "began launching a wave of strikes against Iran" designed to "further degrade military capabilities Iranian forces have used to attack commercial shipping" in the strait.
The geopolitical risk premium is showing up across asset classes. The 10-year Treasury yield fell to 4.55% Wednesday, down from 4.61% before the June PPI reading, as investors rotated toward safe-haven bonds. Bitcoin traded around $64,900, up modestly, while gold held near $4,060 an ounce — relatively flat despite the escalation, as analysts pointed to a lack of momentum in the precious metal.
"The Fed will likely see June's cool inflation as a justification for holding interest rates steady at the decision near the end of this month," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. "Even so, it's hard to feel too excited about last month's drop in producer prices, which largely reflected lower energy prices — prices which rebounded in the first half of July as energy traffic through the Strait of Hormuz slowed."
The last time gasoline prices approached these levels in late May, the national average hit $4.55 before retreating during a brief truce between the U.S. and Iran that broke down this week. With the conflict now escalating again, energy analysts say the path of fuel prices will depend on how quickly — and whether — the strait can be secured for commercial shipping.
This article is for informational purposes only and does not constitute investment advice.
