Analysts are warning of a potential gas price spike, and energy strategist Bob McNally says the economy has been resilient so far but could face broader strains if fuel costs keep climbing.
In a conversation about rising pump prices, McNally, founder of Rapidan Energy Group and a former White House adviser, noted that the national average price for gasoline is around $4.50 a gallon, with many Western states above $5 and California topping $6, according to AAA. He said early impacts have fallen hardest on low-income households and are showing up in inflation data, but broader economic damage has not yet taken hold.
How a gas price spike hits the economy
McNally said persistent increases could ripple through the economy, particularly through monetary policy reactions. He emphasized diesel as the “workhorse” fuel that moves goods, heats homes, supports manufacturing and defense, and powers aviation.
Diesel prices are up roughly 80% year over year, he said, and the market remains tight. A recent Russian export ban has added pressure. If these conditions persist, he warned, that is where significant economic risk could emerge.
What policymakers can do
Asked what options exist to cool prices, McNally said there are few good levers. He described the traditional step of asking Saudi Arabia to raise crude output as the best, though complicated by regional instability.
Other ideas, such as windfall profits taxes or export restrictions, would likely be counterproductive, he said. Good policymaking sometimes means avoiding bad policy, he added.
War and energy as leverage
Discussing the link between conflict and prices, McNally said ending disruptions would likely bring prices down, provided there is no lasting damage to energy infrastructure. He also said Iran has used energy as a weapon by threatening flows through the Strait of Hormuz and menacing key commodities, giving it leverage over U.S. policy.
How long higher prices may last
McNally expects an open-ended period of volatility, with prices swinging between surges and retreats. Consumers and businesses should plan for elevated costs for the foreseeable future, he said.
If the conflict were to end and stay ended without major infrastructure damage, he believes oil prices would fall sharply.
Targeted help for households
While there is little state and local governments can do to directly lower fuel costs, McNally said they can cushion the blow for low-income families through targeted assistance. He stressed that these households bear the brunt of rising fuel prices and would benefit most from short-term relief as broader market forces play out.
For Hawaiʻi drivers and businesses, persistent increases in diesel and gasoline add to already high shipping and living costs. McNally’s bottom line: prepare for continued turbulence, and focus relief on those most affected while markets seek balance.
Some impacts could also interact with broader financial conditions, similar to the concerns explored in Fed interest rate hike: What it could mean for consumers, especially if inflation pressures prompt further policy moves.
