There is no contest in the competition for the most pleasant economic surprise of the last two weeks: The price of gasoline has dropped by at least 25 cents per gallon.
Depending on where you buy, the price was stuck near the $4.00 range for much of May, but as June arrived it dipped below that, landing around $3.75 or even lower.
That’s still way up from the $2.50 unleaded price in Mississippi before the American and Israeli bombing of Iran started at the end of February.
But at least it’s a small break.
The obvious question is: How long can this last? After all, the Strait of Hormuz, through which 20% of the world’s oil is shipped to refineries, has not yet opened to normal traffic. And though the use of weapons and drones around the strait has decreased, there is no agreement between the United States and Iran to end hostilities.
The daily newsletter of Douglas Holtz-Eakin, an economist who is president of the conservative American Action Forum, gave a good
explanation of why fuel prices have declined. Unfortunately, the newsletter was pessimistic that this trend will continue.
Current prices around the world are in the mid-$90s for a barrel of oil.
Holtz-Eakin wrote that he feared oil would be as high as $150 by now.
Fortunately, ingenuity has prevented that.
He said the Strait of Hormuz shutdown removed about 20 million barrels of oil per day from the world market. But producers like Saudi Arabia and the United Arab Emirates have found different ways like pipelines to get more than one-third of that amount, 7.5 million barrels, to their buyers.
Also, oil production from other countries like the U.S., Brazil, Canada and even Venezuela has increased by 1.5 million barrels per day.
Another factor is that the world is now using less oil because of the blockade. The International Energy Agency estimated in May that global oil demand has fallen by about 2% in the second quarter of 2026. The most interesting factor here is China, which was buying 80% or more of Iran’s oil exports, and stockpiled the product in January and February of this year — almost as if it was anticipating an attack.
Finally, more than 30 countries have dipped into their reserves, releasing a total of nearly 500 million barrels in March, April and May.
This has helped prices stabilize, but Holtz-Eakin pointed out that these backup inventories “are being drawn down at an unprecedented pace, and this poses a significant threat to the economy.”
In other words, despite all the efforts to make up for the oil that can’t get through the Strait of Hormuz, the world has been unable to
replace all of it. Unless this changes, the price at the gas pump eventually will increase.
With congressional elections just five months away, this provides the incentive for President Trump and his team to reach an agreement with Iran that reopens the strait to all oil tankers. The obvious concern is what the Iranians would demand in return.
Another option would be resuming missile attacks on Iran — or, if he is truly intent on removing the country’s uranium, sending in troops to do the job.
It’s quite a box for Trump. What’s most frustrating about it is that he campaigned against wars in the Middle East. Even worse, he simply did not listen to the advisers who warned him what Iran might do if it was attacked.
Defense secretary Pete Hegseth recently told a congressional hearing that it’s worth paying more for gasoline to end Iran’s nuclear
ambitions. We may soon see if the public agrees.
