Why fuel prices may go higher still

Oil prices have surged from $65 per barrel before the Iran conflict began in February 2026 to over $100 per barrel by mid-September 2026. Initially, analysts feared prices could reach $150 or even $200 per barrel due to the conflict between the U.S., Israel, and Iran. However, prices have not yet hit those levels. The conflict has disrupted the Strait of Hormuz, a critical route for oil leaving the Middle East, which typically carries most of the region’s oil exports. Currently, traffic in the strait is below 15% of prewar levels, reducing global oil supply. The global oil market has already used many tools to stabilize prices, such as releasing oil from strategic reserves, but these measures are now largely exhausted, leaving prices vulnerable to further increases.

Saudi Arabia has tried to bypass the Strait of Hormuz by using the East-West pipeline, which transports oil from the Persian Gulf to the Red Sea. This pipeline can carry up to 7 million barrels per day, though it typically exports 4 to 5 million barrels daily. In mid-September 2026, attacks on the pipeline—blamed on Iran-backed militias in Iraq—forced Saudi Arabia to temporarily halt oil shipments. Although the pipeline has resumed operations at low volumes, it may take six to eight weeks to return to full capacity. These disruptions have tightened an already constrained oil market. Additionally, threats from Houthi militants in Yemen to attack Red Sea oil exports add further pressure, increasing the risk of fuel shortages and higher prices globally.

Russia, a major global supplier of diesel fuel, has faced production cuts due to Ukrainian drone attacks on its refineries. In response, Russia banned diesel exports, removing about 3% of the world’s daily diesel supply. Diesel is a critical fuel for transportation, including trucks and ships, and its shortage has driven up prices worldwide. In the U.S., diesel prices reached $6.52 per gallon on September 22, 2026, with 47 states experiencing record highs. President Donald Trump has considered banning U.S. diesel exports to address domestic shortages, but analysts warn this could worsen global supply problems by increasing international prices even further.

Fuel price increases have had a significant economic impact. Between March 1 and late September 2026, Americans spent an extra $72 billion on gasoline and $45 billion on diesel compared to the same period in 2025, totaling $117 billion in additional fuel costs. These expenses are on top of the $45 billion the Pentagon estimated the U.S. has spent on the war as of early September 2026. Countries outside the U.S., particularly in South and Southeast Asia, have been hit harder due to their reliance on Persian Gulf oil imports. Some nations have resorted to fuel rationing or emergency measures like shortening workweeks to reduce consumption. Europe is also experiencing shortages, with 15% of French service stations running out of diesel or gasoline on September 20, 2026.

To stabilize oil prices, 32 countries released over 400 million barrels of oil from their strategic reserves in March 2026. However, these reserves are now significantly depleted. The U.S. alone has released 130 million barrels, leaving its Strategic Petroleum Reserve at a 40-year low. Releasing more oil risks damaging the salt caverns where the reserves are stored, limiting further action. China has played a major role in reducing oil prices by releasing reserves and cutting its oil imports by nearly 50% between February and June 2026. China’s shift toward electric vehicles and trucks has helped reduce its oil demand by 1.35 million barrels per day in the first half of 2026. However, China’s oil imports rose by 6.2% in August 2026, signaling potential future price increases as demand recovers.

China has reduced its reliance on oil imports through large-scale electrification of its transport sector. Over 60% of new passenger car sales in China are electric vehicles or plug-in hybrids, and 30% of heavy truck sales are electric. China has also increased exports of electric vehicles, batteries, and solar panels to help other countries reduce their oil dependence. However, China has also increased its use of coal to offset oil demand and support petrochemical production, which raises concerns about greenhouse gas emissions. China currently holds four to six months of oil reserves but may gradually restock them if prices stabilize. If China continues to increase oil imports, it could contribute to further price hikes in the coming weeks.