Iran War Threatens to Erase Tax Refund Gains for Americans

The potential economic benefits of recent tax cuts for many Americans are increasingly at risk of being offset by surging gas prices driven by the ongoing conflict in Iran and its impact on global oil supplies. Even as the White House touted the “largest tax refund season in U.S. History” in January due to changes enacted by the One Big Beautiful Bill Act (OBBBA), economists warn that these gains could be entirely consumed by increased energy costs.

Gas Price Surge and the Strait of Hormuz

The conflict, initiated by a major military operation led by the U.S. And Israel in February, has effectively closed the Strait of Hormuz, a critical waterway for global oil exports, through which more than 20% of the world’s oil supply is transported. Gas prices have risen sharply, increasing by more than 90 cents since February 28th, reaching $3.91 per gallon as of March 22, 2026.

Economic Impact: Canceling Out Tax Refunds

An analysis by the Stanford Institute for Economic Policy Research indicates that if the Strait of Hormuz remains closed for another three weeks and oil prices peak at $110 per barrel in March, gas prices could reach $4.36 per gallon by May. This would result in Americans spending an average of $740 more on gas this year, effectively negating the $748 increase in tax refunds projected for a typical household by the Tax Foundation. Oxford Economics analysts similarly estimate that consumers will spend $60 billion more on gas in 2026 if prices average $3.60 per gallon, also offsetting refund benefits.

Disproportionate Impact on Lower- and Middle-Income Households

The burden of higher gas prices will disproportionately affect lower- and middle-income Americans, who spend nearly 4% of their budget on gasoline – almost twice as much as higher-income earners. The benefits of the OBBBA tax cuts, such as those for overtime and state and local taxes, are likely to accrue more to middle- and upper-class individuals, potentially widening the economic gap.

Government Response and Future Outlook

The Trump Administration has taken steps to mitigate the impact of rising gas prices, including temporarily suspending the Jones Act, a federal law regulating domestic maritime shipping. However, policy experts, such as the Center for American Progress, suggest this measure may only lower gas prices by approximately three cents per gallon.

The Energy Information Administration (EIA) projects that gas prices will average $3.34 in 2026 and $3.18 in 2027. Goldman Sachs analysts suggest oil prices could remain above $100 per barrel through 2027 if supply chain disruptions persist. Even if the Strait of Hormuz reopens, it will take time to rebalance global oil supply due to tanker backlogs and potential infrastructure damage in the Gulf region.

Key Takeaways

• The economic benefits of recent tax cuts are threatened by rising gas prices due to the conflict in Iran.
• The closure of the Strait of Hormuz is a primary driver of increased gas prices.
• Lower- and middle-income households will be disproportionately affected by higher energy costs.
• Government interventions, such as suspending the Jones Act, are expected to have a limited impact.
• Elevated gas prices are likely to persist throughout 2026 and potentially into 2027.