Pain at the Pump Won’t Hurt the Global Economy

More than a week after conflict in the Middle East erupted, downstream effects are garnering attention, including a perennial eyeball-grabbing issue worldwide: gasoline prices. They are surging, and from San Francisco to Sydney and Boston to Berlin, government officials and consumer groups alike are airing concerns about price gouging, profiteering and economic effects. We agree it is annoying to pay more to fill up your car. But despite their visibility, keep gasoline prices in perspective—their macroeconomic octane is limited, and they don’t drive stocks.

In the US, the national average for a gallon of regular gasoline hit $3.54 as of March 10, up more than 43 cents from a week ago ($3.12) and 62 cents ($2.92) a month earlier.^[i] Seasonal factors, including springtime demand and producers’ switching gasoline blends from winter to summer, have played a role in higher prices, as did late-January blizzards (which caused a few US oil production and refinery outages).^[ii] But global crude oil prices—which jumped on the run-up in anticipation and since the Middle East conflict began—are the primary driver behind the recent price surge.

Higher gas prices aren’t an exclusively American phenomenon. Germany’s ADAC motoring club reported average prices for diesel crossed over €2 ($2.33) per liter.^[iii] For those who don’t think in metric, this is over $8.50 per gallon. In the UK, motor groups reported petrol (gasoline, in American-speak) prices are up nearly 5 pence a liter to 137.5p ($1.84) since the conflict’s start, fueling fears the cost of filling the family car will soon top £100.^[iv] Down Under, Australian motoring groups have said Sydneysiders are paying 25 cents more for a liter of petrol than before the Middle East conflict.^[v]

We don’t know anybody who likes paying more to fill up their car, and gas prices are a very visible cost many folks must pay. However, keep their relative importance in mind. For instance, they don’t factor hugely into consumer price measures. Gasoline is just 2.9% of America’s Bureau of Labor Statistics’ Consumer Price Index (CPI) basket.^[vi] That is similar to, if unsurprisingly a bit above, petrol’s share of the European Union’s harmonized index of consumer prices basket (2.4%) and the UK’s CPIH basket (2.2%).^[vii]

Now, CPI, HICP and CPIH aren’t cost-of-living measures. Depending on your personal circumstances, gasoline may take up more of your monthly budget if you have a long commute—or less, if you drive an EV. But broadly speaking, gasoline is a small segment of consumer spending (shelter, in comparison, is the biggest portion of US CPI at around 35%).^[viii] Buying gas also contributes to broader consumer spending. Some commentators habitually equate rising gas or oil prices to a tax hike. No. Households may have to change discretionary spending to account for higher prices at the pump, but the overall amount spent isn’t changing.

While higher gas prices will drive headlines, gasoline doesn’t make up as much of consumer spending as it used to. Go back to the 1973 – 1974 oil shock, when OPEC nations implemented an oil embargo on the US and other Western countries. That caused global crude oil prices to surge from $4.60 a barrel in October 1973 to $15.50 a barrel in January 1974—and prices would remain elevated for the rest of the decade before leveling off in the early 1980s.^[ix] Correspondingly, gasoline prices rose throughout the mid-1970s and hit a high in 1981—a level they wouldn’t hit again until 2000. Following crude’s climb, gasoline’s share of US consumer spending also rose, from 3.2% in 1972 to 5.1% in 1981. (Exhibit 1) Since then, gasoline as a percentage of total personal consumer spending has trended downward. A jump in gas prices in the 2000s did temporarily raise gasoline purchases’ share of total spending, though it was no 1970s redux.

Exhibit 1: Rising Gas Prices, Falling Share of Consumer Spending

Source: St. Louis Federal Reserve and US Department of Energy, as of 3/9/2026. Motor vehicle fuels, lubricants and fluids expenditures as a percentage of personal consumption expenditures and US average annual retail price of gasoline, annual, 1950 – 2023 (the latest data available for average annual retail gasoline prices).

Though crude oil prices are the biggest individual contributor to what you pay at the pump, they make up around 50% of the retail price per the EIA. The other half goes to refining costs and profits (18%), distribution and marketing (14%) and federal and state taxes (14%).^[x] Those latter two categories are big reasons why prices vary across states. The further your state is from a refinery, the higher the cost to ship gas. Beyond this, the average tax for a gallon of gas is 51 cents per gallon—a federal duty of 18 cents and an average state tax of 33 cents—but that state duty can vary greatly.^[xi] Below-average tax states include Texas and Oklahoma (20 cents per gallon), Arizona and New Mexico (19 cents) and Alaska (9 cents).^[xii] Those paying higher than average include Pennsylvania and Washington (59 cents), Illinois (66 cents) and California (71 cents).^[xiii] State-specific developments add to costs, too. California has the highest gasoline prices in the nation due in part to high operating costs and environmental regulations. Those factors contributed to two major refineries shutting down this year—further weighing on California’s in-state refining capacity and supply.^[xiv]

We understand the handwringing over higher gas prices. It would be more fun to spend our funds on a new spring wardrobe or vacation than at the gas station. But while global crude oil developments are an easy scapegoat for higher prices, they are just one factor among several—and they aren’t the macroeconomic negative many people perceive. That many think otherwise is further evidence of the sentiment reset this year and reason to remain bullish.