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U.S. gasoline tops $4 a gallon again as Iran war escalates
The 'real bottleneck' is in refining
Key Takeaways:
- U.S. average gasoline prices climbed back above $4 a gallon as the U.S.-Iran conflict intensified and raised concerns about disruptions to global fuel supplies.
- Refining constraints, reduced Russian refining capacity, low imports and tight inventories have pushed fuel prices higher, with U.S. diesel exceeding $5 a gallon.
- Refiners are running at high rates to meet demand and capture margins, but any outages or supply disruptions could drive fuel prices higher, analysts said.
U.S. gasoline prices at the pump climbed back above the $4-a-gallon mark as the Middle East conflict intensified, threatening to exacerbate a global crunch for transportation fuels and stoke inflation.
Regular unleaded gasoline averaged $4.003 a gallon, according to daily prices posted by the American Automobile Association, after hovering for a month below the painful threshold for drivers. Prices for road fuels are also soaring in Europe, with gasoline nearing seasonal levels last seen in the aftermath of the invasion of Ukraine in 2022.
Fuels have spiked faster than crude since the U.S.-Iran war caused the oil market’s biggest-ever supply disruption, straining consumers and leaving central banks on edge. The “real bottleneck” is in refining, more so than in crude, Morgan Stanley said in a note.
“For now, there isn’t enough refining capacity running to turn the available crude into product,” Morgan Stanley analysts including Martijn Rats said. That “keeps a lid on crude, and at the same time leaves product markets scrambling.”
U.S. gasoline remained stubbornly expensive even as crude prices slumped in June and American refineries ran hard. Prices eased to as low as $3.79 a gallon before trending back up in early July.
Now, with the scope of both U.S. and Iranian strikes expanding, the risk of sustained disruptions to energy flows through the vital Strait of Hormuz is rising and sending prices surging again.
On Monday, the average price at the pump in the United States climbed to $4 a gallon, according to the AAA motor club, as the war with Iran reignited, halting most shipping and pinching already-depleted global refineries. — Jarrett Renshaw (@JarrettRenshaw) July 20, 2026
Fuel prices are also supported by a sharp decline in Russian refining capacity due to Ukrainian attacks, low U.S. imports and tight stockpiles, at a time when demand remained relatively resilient during the peak summer driving season.
The rebound at the pump also places renewed focus on a political challenge for President Donald Trump’s Republican Party as it looks to hold the House and Senate this fall. Democrats have highlighted the cost of living on the campaign trail, zeroing in particularly on high gasoline prices.
For now, the strain on American households isn’t yet as bad as it was in May, when average pump prices were in excess of $4.50 a gallon.
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But prices may yet have room to run. Refineries are processing crude at remarkably high rates in an effort to capture profits and supply the market with fuel. That runs the risk of triggering outages, particularly in extreme weather like hurricanes. With capacity already strained and stockpiles tight, any disruption to fuel production could trigger a much larger reaction in prices than usual.
The price of diesel in the U.S. moved above $5 a gallon last week. In Europe, gasoline, diesel and jet fuel have also surged.
Global crude benchmark Brent jumped 16% last week, the most since April. Futures extended gains past $91 a barrel early on July 20 following a ninth straight day of U.S. airstrikes on Iran, before erasing the day’s gain after Tehran said it received proposals from mediators. Futures remain 45% up this year.
