Experts say Americans will soon feel the brunt of an “oil tax” from the war in the Middle East that could lead to a pullback in consumer spending.
Since the conflict began disrupting shipping traffic through the Strait of Hormuz, the key transportation corridor that typically handles one-fifth of the world’s oil supply, crude oil prices have surged, driving up gasoline prices as well.
With higher fuel costs weighing on shoppers’ budgets, companies and Wall Street strategists are warning that consumers, especially low-income Americans, could become more frugal.
“[A] simple rule of thumb is oil price up … $20 per barrel is approximately [a] $150 billion tax on annual consumer spending,” Raymond James strategist Tavis McCourt wrote in a note to clients.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
The US national average gas price has already risen by more than $0.60 from a month ago, and higher prices could be the new normal, with crude oil futures (CL=F) hovering around $100 a barrel. Industry analysts estimate that every $10 increase in crude oil prices translates to a roughly $0.25 increase per gallon at the pump.
The uncertainty weighed on Americans’ views of the overall economy in early March, according to a University of Michigan consumer sentiment reading released on Friday, which hit its lowest level so far this year.
“Anytime you have higher gas prices, it’s going to affect both supply and demand because the consumer is going to be pinched in their discretionary spend,” Forrester Research retail analyst Sucharita Kodali told Yahoo Finance.
Strategists say that while all consumers are likely to be affected by higher energy prices, lower-income consumers could have more difficulty absorbing higher costs due to affordability issues.
Persistently higher oil prices could start “amplifying K-shaped dynamics in the economy,” or the divide between the finances of the lowest and highest earnings households, Evercore ISI vice chairman Krishna Guha wrote in a client note.
Read more: What is a ‘K-shaped’ economy, and what’s causing the divide?
The oil shock comes as the wage growth gap between low-income and high-income households is at its widest level in 10 years, according to the Bank of America Institute. In February, higher-income earners’ wages grew by 4.2% year over year, while low-income earners’ wages rose just 0.6%.
Going into 2026, economists were optimistic that larger tax refunds from President Trump’s One Big Beautiful Bill Act (OBBBA) could boost consumer spending and help close the gap between high- and low-income earners.
