U.S.-Iran Conflict Drives Up California Gas Prices
Escalating tensions between the U.S. And Iran are poised to impact California drivers, with potential increases in gasoline prices expected within the coming weeks. The conflict, which intensified following U.S. And Israeli strikes against Iran and the death of Supreme Leader Ayatollah Ali Khamenei, has disrupted key Persian Gulf shipping lanes and sent shockwaves through global oil markets.
Oil Market Volatility and Price Increases
The outbreak of war in the Middle East has led to a surge in crude oil prices. Brent crude oil, the international standard, spiked as much as $10 a barrel on Monday, reaching $82.37 before settling down. According to Severin Borenstein, faculty director of the Energy Institute at UC Berkeley’s Haas School of Business, each dollar increase in the price of a barrel of crude translates to approximately 2.5 cents per gallon at the pump.
This suggests California drivers could face a minimum increase of 20 cents per gallon, though the ultimate impact remains uncertain. “The real issue though is the oil markets are just guessing right now at what is going to happen. It’s a time of extreme volatility,” Borenstein said. The extent of price increases will depend on whether the conflict widens or resolves quickly.
California’s Unique Vulnerability
Californians already pay significantly more for gasoline than the national average. As of March 2, 2026, the average cost of a gallon of regular gasoline in California is $4.66, up 3 cents from the previous week and 30 cents from the previous month, according to AAA. The national average is around $3 per gallon.
Several factors contribute to California’s higher prices, including higher taxes and the state’s requirement for a cleaner, less polluting gasoline blend to combat pollution. The transition to California’s summer-blend gasoline, which is less volatile in hot weather, typically adds at least 15 cents per gallon.
Supply Concerns and Refinery Capacity
Recent refinery closures have further exacerbated the situation. The Phillips 66 refinery in Wilmington closed in October, and the Valero refinery in Benicia is slated for closure, reducing the state’s refining capacity by approximately 18%.
California’s crude oil production has also been declining, increasing its reliance on international imports. In 2024, only 23.3% of the crude oil refined in the state was produced in California, with 13% from Alaska and 63% from other countries, including roughly 30% from the Middle East, according to Jim Stanley, a spokesperson for the Western States Petroleum Assn. Disruptions to Middle East supply could lead to a “supply crunch and real price volatility.”
Strategic Importance of the Strait of Hormuz
The Strait of Hormuz, a critical waterway through which approximately 20% of the world’s oil passes, was virtually closed on Monday, according to reports. Despite accounting for only about 3% of global oil production, Iran wields significant influence over energy markets due to its control of the strait.
In addition to the U.S. Attack, Iran has responded with missile attacks targeting neighboring Persian Gulf states, including Saudi Arabia, intercepting Iranian drones targeting a refinery complex.
Political Responses and Policy Debates
California Republicans and the California Fuels and Convenience Alliance have attributed rising gas prices to Governor Gavin Newsom’s policies. A landmark climate change law aims for California to achieve carbon neutrality by 2045, and Newsom halted new fracking permits and initiated a phase-out of oil extraction by 2045. However, Newsom recently signed legislation allowing up to 2,000 new oil wells per year through 2036 in Kern County, despite legal challenges from environmental groups.
Borenstein does not anticipate that increased state oil production will significantly lower gas prices, as it is only marginally cheaper than imported gasoline. The legislation aims to support the Kern County oil industry, which faced pipeline closures without additional supplies.
Economic Impact
The oil and gas industry supports over 535,000 jobs, $166 billion in economic activity, and $48 billion in local and state taxes statewide, according to a report by the Los Angeles County Economic Development Corp.