Before the onset of the war, U.S. oil closed at $67.02 on February 27. However, by Tuesday morning, following a significant price spike on Monday, oil is trading over $20 higher at $88.20 per barrel.
Analyst Tavis McCourt suggests that a $20 increase in oil prices could result in consumers spending an additional $150 billion at the fuel pump. The Tax Foundation predicts that the individual tax cuts from the 'big beautiful bill' will amount to $129 billion for 2025, with most of it appearing in tax refunds this filing season.
McCourt's analysis evaluates the impact of rising oil prices on the $420 billion spent by consumers on gasoline in the fourth quarter of 2025. In his CNBC interview, he accounted for both the potential decrease in demand due to high prices and companies' need to maintain margins. He noted in a statement, 'With the $25 increase last week, if oil prices remain steady, it essentially counteracts the fiscal benefits from the [One Big Beautiful Bill Act].'
According to Raymond James, the economic effects of the tax cuts from the 'big beautiful bill' might be negated if oil prices remain $20 higher than before the U.S.-Iran war.
Higher oil prices present a challenge not only to President Donald Trump's efforts to curb inflation but also to his key legislative success. Stephanie Roth, chief economist at Wolfe Research, provided estimates similar to those of increased consumer spending from the tax law. However, Wolfe noted that oil prices would need to hover above $100 to fully erode the economic benefits of the tax cuts.
Roth commented, 'In all these scenarios, it has to last longer than it is now. The impact on gas prices so far has been short-lived and modest compared to how it may ultimately unfold.' Nevertheless, oil prices are expected to take time to decrease post-conflict. Trump mentioned in a CBS News interview that though the war is 'very complete,' no timeline was provided for its conclusion.
Historical trends indicate that post-conflict oil price normalization, such as after the Gulf War in 1990 and the Russian invasion of Ukraine in 2022, can take around six months.
The weakening stimulus from the tax law was anticipated to spur economic growth in 2026, with forecasts of rejuvenated U.S. growth partly credited to the law. Yet, the current oil price shock coincides with when consumers are poised to receive tax refunds. Citadel Securities estimated that only 30% of refunds had been issued by March 1, with expectations rising to 75% by May 1.
Falcon Wealth Planning CEO Gabriel Shahin expressed, 'If we were counting on those tax refunds to boost consumer spending, these increased oil prices are rerouting all that cash to energy costs, essentially nullifying the expected economic boost.'
Conversely, Dan Niles of Niles Investment Management portrayed the refunds as cushioning the economy against higher oil costs, citing past resilience during similar conditions in 2022 and 2023 despite looming recession predictions. He argued, 'Given past stresses and current inflation levels, oil at $100 shouldn't precipitate a new recession.'
While many on Wall Street draw parallels between today’s price surge and that during the Russia-Ukraine crisis four years ago, Roth advised investors to treat such comparisons with caution.