Why the Iran War Has Raised Gasoline Prices
April 4, 2026 § 7 Comments
The United States is a net exporter of oil and gasoline. In fact, it is the largest exporter of gasoline in the world. Yet, the Iran war, which resulted in the blockade of the Strait of Hormuz, an important oil transit waterway, has caused shortages of oil in net importing nations. Why, then, has it caused oil (and gasoline) prices to rise steeply in the US, a net exporter?
Before answering that question, here is another seeming anomaly. The United States is a net exporter of natural gas, mostly in the form of liquefied natural gas (LNG). The Iran war, and the associated Strait of Hormuz blockade, has caused LNG shortages in net importing nations, causing a dramatic rise in price. Yet the price of natural gas in the United States has scarcely moved at all.
The answer is a bit nuanced but begins with the fact that oil is fungible. This means that similar grades of oil can be replaced by different sources. This makes oil a world commodity in terms of price. When the price goes up in a net importing nation, so does it in the US.
The US situation is further complicated by the fact that, prior to about 2010, we were net importers of oil. The cheapest oil available was difficult-to-refine heavy oil, and it was right next door, in Canada, Mexico and to lesser degree, Venezuela. American refineries were built to handle this stuff using expensive processing equipment. When abundant shale oil made the US technically self-sufficient, refineries were faced with the dilemma of buying more expensive domestic oil and idling the expensive kit made for heavy oil. This dilemma has been solved by importing heavy oil and at the same time exporting even more light oil, making us a net exporter.
Now to the price of gasoline. When war related gasoline prices rocketed up in importing nations, the US suppliers benefited from this. But importantly, the international (export) price now applied equally to the same fuel sold domestically. Ergo, a net exporter of gasoline, still had high domestic prices.
That did not happen with natural gas. Very simply put, gas is not fungible. It is not exported in the same form that it is sold domestically. The export is in liquid form, with a price tag determined by world prices. Natural gas in gaseous form is a regional commodity. It has a supply and demand balance that is unaffected by foreign wars. A minor exception is parts of the upper east coast which use LNG. Aside from the high likelihood of their paying world prices, the 1920 Jones Act restricts their supply to US built, owned, operated and crewed vessels, adding another constraint to a heavily utilized fleet.
So, there you have it. Domestic natural gas is insulated from the perturbations in supply caused by foreign wars, but oil and derivatives such as gasoline are not. I have been asked whether there is a remedy. In a free market, not really. In theory, some insulation could be provided by producing methanol from low-cost natural gas and then processing that to gasoline using a process invented decades ago by Mobil. In practice, it is not going to happen.
Just rattle sabers but keep them sheathed*.
*Know when to hold them, know when to fold them, from The Gambler 1978, performed and written by Kenny Rogers.
Vikram Rao
April 4, 2026
Research Triangle Energy Consortium 
Thanks, Vik, for the cogent summary. Happy Easter, my friend to you and family.
Thanks, Rob. Folks like you already know this stuff. This was meant mostly for the lay people.
Vik,
For the natural gas case, domestic prices did not change due to limited US LNG export capacity. US LNG export prices rose, while domestic prices hardly changed. If there were extra LNG export capacity where producer could shift their natural gas to export, it would have tilted the domestic supply-demand, and prices would have increased. The dilemma is that building LNG terminals is expensive, and they are committed to long-term contracts. However, depending on what happens in the Middle East and with Iran and Russia, the world’s number one and two natural gas reserve holders, it may be feasible for the US to build more LNG terminals. The most likely scenario is for EU countries to commit to buying long-term US LNG.
best
Abe
Sent from my iPad
Yes, but a new liquefaction plant would take at least 4 years, and they would have to be able to predict demand that far out. Other than that, yes increase in LNG export will have upward pressure on domestic NG prices.
Vik you could have just say yes to my comment
I’m the lay person who never has understood why gas prices go up or down. This is helpful and it seems like the influences have changed in the past two decades. I lived in Oklahoma and Texas for 30 years and my friends were gleeful when brent crude oil went up in price. Otherwise they capped their wells. If all those oil wells were uncapped would that increase production and we’d see a decrease in domestic prices or is it still so tied with the global economy that what we do in the US doesn’t really have much of an impact?
Apologies for late response. If indeed there are a lot of wells that could be productively uncapped, it could affect the world price. Supply and demand. But domestic price will always be linked to world price.