Iran's ongoing conflict continues to disrupt energy shipments, keeping U.S. gasoline and diesel prices elevated and allowing higher energy costs to feed into broader inflation, borrowing expenses and household purchasing power. With the November midterm elections approaching, inflation and the cost of living remain major economic pressures, while risks to shipping through the Strait of Hormuz and the Red Sea have yet to ease.
Strait of Hormuz traffic remains below prewar levels
The war involving Iran began in February this year, after which the Strait of Hormuz was closed and international crude prices rose sharply. Prices remain well above their level at the start of Donald Trump's second term. The strait normally carries roughly one-fifth of the world's oil supply. Tanker traffic nearly stopped in the early stages of the conflict and has since recovered, but remains below its prewar level.
Maritime risks have also persisted. Commercial vessels have come under attack near the strait, and the United Kingdom Maritime Trade Operations office reported multiple incidents involving merchant ships this month. U.S. Central Command attributed some of the attacks to Iran. The U.S. military has maintained a maritime blockade of Iran. The Pentagon says that since July, U.S. forces have disabled four commercial vessels identified as violating the blockade and destroyed 10 tankers linked to Iran's Islamic Revolutionary Guard Corps.
The United States has not launched direct airstrikes against Iran in recent months, but it still has more than 10 warships, dozens of aircraft and thousands of sailors and Marines deployed in the Middle East. The possibility of further military action is keeping markets focused on whether energy shipments can return to normal.
Higher fuel costs squeeze households and businesses
U.S. gasoline prices have spent more time above $4 a gallon this year and are currently around the mid-$4 range. Stations charging less than $3 a gallon are no longer common. Rising fuel bills are cutting into household budgets and have begun to affect spending even among higher-income consumers. Some drivers are changing their driving habits to get more miles from each gallon.
Diesel prices have climbed more sharply. The U.S. Energy Information Administration puts the national diesel price at about $6.18 a gallon, more than $2.50 above its level a year earlier. In California, prices are above $8 a gallon. Diesel is a key cost for trucking and supply chains, so a sustained increase could push up freight charges and other operating expenses.
September inflation reaches 3.7% as borrowing costs rise
The U.S. Consumer Price Index rose 3.7% year over year in September, above economists' expectations. Energy was a major contributor: energy prices increased 20.4% from a year earlier, while gasoline prices rose 34.2%. The figures show that the oil shock is no longer confined to the pump and is adding to broader inflationary pressure.
The renewed rise in prices is also putting pressure on the Federal Reserve and bond markets. The Fed raised interest rates in September for the first time in three years in response to accelerating inflation, and another increase remains possible this year. The yield on the 10-year U.S. Treasury briefly reached 5.31% this month, up from below 4% at the end of February. That yield influences borrowing costs for mortgages, auto loans and credit cards.
The rate on a 30-year mortgage has also moved higher. During the roughly eight months since the conflict began, it rose from just below 6% to 7.5%. For homebuyers and households refinancing existing debt, higher energy bills and more expensive financing are arriving together, leaving less room for discretionary spending.
Real wage gains weaken as shipping risks persist
U.S. wages are still rising, but price increases have outpaced wage growth in recent months. Inflation-adjusted wages have fallen since the war began, while much of the gain in purchasing power recorded since the start of Trump's second term has effectively been erased. For voters, the cost of gasoline, food and housing is therefore becoming an increasingly difficult economic issue to avoid before the midterm elections.
The situation in the Middle East could also intensify. A second U.S. carrier strike group is crossing the Pacific and is expected to enter the region. Yemen's Houthi movement has recently retaken key areas along the Red Sea coast and increased missile attacks on Saudi Arabia. The group is supported by Iran and has previously threatened shipping in the Red Sea. The Trump administration launched a large-scale air campaign against the Houthis last year, followed by a ceasefire, but the group has since rebuilt its capabilities.
The Red Sea and the Bab el-Mandeb Strait are critical links in major shipping routes. Further disruption could spread beyond energy shipments to a wide range of goods transported through the region. For now, U.S. fuel prices, the September inflation figures and any further interruption to maritime traffic remain the key facts for assessing pressure on household costs and the direction of inflation.