U.S. gasoline prices unlikely to cool soon despite US-Iran ceasefire deal

A preliminary deal to end the US-Israel war on Iran has sent crude oil prices tumbling to their lowest in three months, raising hopes that the Strait of Hormuz may soon reopen. However, experts warn that U.S. gasoline prices will not drop as quickly as President Donald Trump has suggested.

The conflict, lasting more than three months, disrupted the strategic shipping route through the Strait of Hormuz, which normally carries about a fifth of the world's crude oil and liquefied natural gas. According to a Bloomberg analysis, in wartime an average of only 10 vessels passed through the strait daily, compared with 135 under normal conditions.

On June 23, the average U.S. gasoline price stood at $4.06 per gallon (3.78 liters), according to the American Automobile Association (AAA). That is down from the May peak of $4.48, but still far above the $2.98 per gallon on February 28, when the U.S. and Israel began attacks on Iran.

Patrick De Haan, head of petroleum analysis at GasBuddy, said gasoline prices could ease in the coming days due to the ceasefire, but the relief will be short-lived. He does not expect prices to return to pre-war levels until 2027, even if the ceasefire holds. “It will take months, or even more than a year, for global oil inventories to recover to where they were before the war,” De Haan said.

John Deal, managing director of capital markets at Post Oak Group, pointed to several factors that will keep prices elevated: “There are many institutions and companies that need to replenish inventories — such as the U.S. Strategic Petroleum Reserve — and execute contracts that have been stalled for months.”

Supply chain bottlenecks

Crude oil production fell sharply during the war. According to the International Energy Agency (IEA), more than 14 million barrels per day — roughly 14% of global demand — were taken offline. Restoring that output takes time, especially when refineries damaged by the fighting may take even longer to restart.

Mark Jones, a political science professor at Rice University, noted that producers may be reluctant to fully resume operations until they see the ceasefire hold. The deal to reopen the strait includes a 60-day negotiation period between the two countries.

According to Reuters, refineries that shut down as a precaution could return to 95% capacity in 40 to 60 days. But port congestion is considered the biggest obstacle. Shipping data from Kpler shows more than 500 vessels still waiting to transit the strait. Those ships will need weeks to reach their destinations, dock, and unload.

The U.S. Strategic Petroleum Reserve has fallen 18% since the start of the war, to its lowest level since 1983. Meanwhile, elevated demand for jet fuel during the summer travel season from June to August will continue to pressure prices.

Pressure on food prices

Rising prices are also squeezing household food budgets. The latest Consumer Price Index shows U.S. inflation rose 4.2% year-over-year, driven primarily by fuel costs.

Nearly half of the world's urea, which is used in fertilizer, is produced in the Gulf region and shipped through the Strait of Hormuz. This has made fertilizer more expensive for American farmers. Tomato prices, already inflated by Trump’s tariffs on Mexico, have jumped 40% over the past year. Lettuce prices rose more than 16% in May, and ground beef prices are up about 12% year-over-year.

Professor Jones warned that food prices will be slow to decline: “Many retailers, wholesalers, and producers will hold prices at current levels, or reduce them only if forced by falling sales.” He drew a parallel to the COVID-19 pandemic, when grocery retailers kept prices high even after supply-chain constraints eased.