Here’s Why Gasoline Prices Are High (Again)

Originally published on Substack. 

Americans are getting hit again — at the pump, on utility bills, and soon at the grocery store. This week’s surge in oil, diesel, and shipping costs is being framed as a Middle East story. That is only half true. The conflict is real and it matters. But the reason this shock is landing so hard on American families is that Washington left them exposed.

Let me give you the straight economics.

What Just Happened
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On February 28, the U.S. and Israel launched Operation Epic Fury — coordinated strikes on Iranian military targets, nuclear sites, and leadership, resulting in the death of Ayatollah Ali Khamenei. Iran’s response was swift and targeted where it hurts most: the Strait of Hormuz.

Iran’s Revolutionary Guard declared the strait closed, threatening to set ablaze any vessel attempting to pass. At least five tankers were damaged, two personnel killed, and about 150 ships stranded in open Gulf waters.

As of March 4, only five vessel crossings were recorded through the strait — compared to a seven-day average of 27. Maersk, Hapag-Lloyd, MSC, and CMA CGM — the world’s largest shipping firms — have all suspended operations and rerouted vessels around Africa’s Cape of Good Hope, adding weeks to transit times and billions to costs.

“When analysts have looked at the things that could go wrong in global oil markets, this is about as wrong as things could go at any single point of failure.” — Kevin Book, Clearview Energy Partners

The numbers hitting family budgets are real. As of March 5, the national average for regular unleaded hit $3.25 per gallon — up from $2.98 just one week ago, a 9% weekly surge that is the sharpest in nearly four years. Diesel has climbed to $4.124 per gallon — the highest since December 2023. The benchmark freight rate for Very Large Crude Carriers hit an all-time record of $423,736 per day — a 94% increase in a single weekend. And analysts at Barclays and Goldman Sachs warn Brent crude could reach $100 per barrel or higher if disruptions persist — the same level that sent gasoline to an all-time national average of $5.016 per gallon after Russia invaded Ukraine in 2022.

Why Americans Pay Global Prices No Matter How Much We Produce

Here’s what I hear constantly — and what my peer-reviewed research on oil and gasoline markets confirms: oil is a globally traded commodity.

When a chokepoint carrying roughly 20% of global oil consumption shuts down, prices rise for everyone. About 70% of the oil passing through the Strait goes to China, India, Japan, and South Korea. When their supply tightens, their economies slow, global demand reshuffles, and American families pay more — at the pump, at the grocery store, and on every freight bill embedded in the goods they buy.

Our domestic production is a genuine buffer. Without it, we’d already be at $4 or more per gallon. But it is not a wall. The global market is the global market. And right now, the global market is in crisis.

This Lands on Families Already Squeezed

This shock does not arrive in a vacuum. Before this week, GasBuddy had forecast annual average prices below $3 per gallon for the first time since 2020 — a genuine bright spot for families still recovering from the inflation surge of recent years. That relief is now at serious risk.

Economists warn that if prices remain elevated, the retail industry could face a significant cooling period as consumers prioritize fuel and essential groceries over discretionary spending. FedEx and UPS have already implemented general rate increases of 5.9%, but effective shipping costs are rising by as much as 18% once fuel surcharges are factored in.

This is Bastiat’s “seen and unseen” in real time. The seen is the conflict in the Gulf. The unseen is the American truck driver, commuter, farmer, and family paying more because policymakers made the economy less adaptable, less productive, and more dependent on decisions made far from home.

Government Failure: The Full Picture

What we are living through is not just a geopolitical event. It is the compounded consequence of years of government failures — domestic and foreign — that left American families with no cushion.

Failure 1: Restrictions on domestic energy supply.

The U.S. is the world’s largest oil producer. But decades of permitting delays, leasing restrictions, pipeline blockades, refinery constraints, and ethanol mandates have suppressed what we can produce and process. My peer-reviewed research documents how ethanol legislation distorts gasoline price dynamics, adding costs and volatility that fall directly on consumers. A free country that wants affordable energy does not handicap its own supply base and then act surprised when global turmoil shows up in family budgets.

Failure 2: Tariffs as a hidden energy tax.

Tariffs are taxes. Before this week’s shock, they were already raising costs on steel, equipment, and industrial inputs the energy sector needs to produce, refine, and move fuel. Protectionism doesn’t sit off to the side as a separate policy debate — it compounds energy costs across the entire supply chain. You cannot claim to care about affordability while defending taxes on the inputs that power the economy.

Failure 3: Fiscal recklessness that eroded family resilience.

Washington spent trillions of taxpayer dollars in recent years and still left families with less cushion. Electricity prices have climbed 36% over the last five years, and the federal government got it off the way for businesses to build the energy infrastructure or refinery capacity that would give families real protection against shocks like this one.

Government did not build a meaningful cushion for working Americans. It helped erode one.

Failure 4: Strategic dependence on a volatile region.

The world — including America’s key trading partners — remains deeply dependent on Middle Eastern energy flows. As Ali Vaez of the International Crisis Group put it: “Closure of the Strait of Hormuz would disrupt roughly a fifth of globally traded oil overnight — and prices wouldn’t just spike, they would gap violently upward on fear alone.”

The policy answer is more domestic production, more free trade, and faster permitting — not less.

The Answer Is Not Price Controls

It never is. Price caps feel compassionate until the shortages, reduced investment, and supply pullbacks show up.
We have run this experiment before — on gasoline, on rent, on prescription drugs. It fails every time because it attacks the symptom while making the cause worse.

Cap the price of energy without increasing supply and you get less energy. That is not a theory. That is economics.

The Bottom Line

Energy price shocks are not simply acts of fate. They are the result of geopolitical risk colliding with bad policy choices made over many years. War triggered this spike. Government failures made it more painful than it had to be.

As Milton Friedman taught us: don’t judge policy by its intentions — judge it by its results. Families are the ones paying for the gap between rhetoric and reality. They deserve better.

Five Takeaways for Policymakers

1. Unleash domestic energy production now. Fast-track permitting, expand pipeline and refining capacity, and stop treating domestic abundance as a political problem. Every barrel suppressed by regulatory red tape is a barrel held hostage to global volatility.

2. End tariffs. Tariffs on steel, aluminum, and industrial equipment compound the price shock families are already absorbing. Free trade lowers costs — protectionism raises them.

3. No price controls — full stop. A gas price cap sounds compassionate. The unseen is shortages, long lines, and reduced investment in the production that would bring prices down naturally. We’ve run this experiment. It fails.

4. End the Strategic Petroleum Reserve so the private sector best allocated oil rather than holding oil out of the market thereby driving prices higher.

5. Make affordability the governing standard. Every energy policy decision should be evaluated first by its impact on the cost of living for working Americans — not its appeal to any political constituency.

Closing

I’ve spent years studying how energy prices move through supply chains and how government intervention distorts them. What the data — and Friedman and Bastiat — consistently show is that the market, when free to operate, is the fastest and most reliable path to lower prices. Government failure is what makes energy expensive. Free markets is what makes it affordable.

Policymakers still have time to respond. Families don’t need more speeches about compassion while Washington keeps making energy scarcer and more expensive. They need more supply, more freedom, and more discipline. That is how you lower prices. That is how you strengthen the economy. And that is how you let people prosper