Gas prices remain high across the country, with prices in Michigan well above $4 per gallon at the pump. As higher fuel costs put additional pressure on many families, it is critical for consumers, businesses and policymakers to understand the factors driving these prices.
Antonio “Tony” Doblas-Madrid is an associate professor in the Department of Economics at Michigan State University’s College of Social Science, where his expertise focuses on international and macroeconomics. Here, he explains why gas and diesel prices have risen, as well as what consumers should expect in the coming weeks ahead.
The main factor is the Iran conflict’s impact on global oil supplies and shipping. Uncertainty over how much oil can move through the region— and how safely — has pushed crude prices higher. Damage inflicted by attacks against major refineries in the Middle East and low fuel inventories are adding pressure, especially on diesel. Higher prices can eventually encourage more production and reduce demand, but that takes longer when the main issue is limited refining capacity rather than a lack of crude oil.
It is a combination of both. Higher crude prices raise fuel costs, while refinery disruptions and low inventories are also pushing gasoline and diesel prices. Diesel markets, in particular, are unusually tight.
If the conflict ended, crude prices could drop quickly on expectations. But they probably wouldn’t return to normal right away. Markets would need to see production resume, shipping routes reopen and inventories rebuild. If refining is the main bottleneck, increasing supply will take time. Higher prices alone cannot add refining capacity overnight.
Oil production needs to recover; shipping needs to become more reliable, and refineries need enough crude to operate normally. Gasoline and diesel inventories also need to stop falling and begin rebuilding.
Wholesale prices could ease quickly if fears of a wider disruption fade. But if refining capacity is the main problem, relief will depend on refineries increasing output, restarting after outages or adding capacity. That usually takes weeks or months, not days.
The three biggest players are the United States, Russia and Saudi Arabia. The United States could increase drilling or release oil from its reserves, but it cannot quickly make up for supply disruptions from both Russia and Saudi Arabia. Russia’s war and sanctions limit its exports, while Saudi Arabia has spare capacity but faces pipeline and Strait of Hormuz risks. Iran is directly involved in the conflict and already faces heavy sanctions, limiting how much additional oil it can bring to market. Because the conflict is in the Middle East, Iraq, the UAE and Kuwait also face potential shipping and production disruptions. Canada could send more oil to the United States, but it is a smaller producer and cannot replace the supply from the major exporters. China could release some reserves or reduce purchases, but its massive domestic consumption limits how much it can contribute to global markets. And if refineries and shipping remain the main bottlenecks, more crude alone will not bring fuel prices down quickly.
Diesel is essential to trucking, farming, construction, manufacturing and heating, so demand is harder to cut. Global supplies are tight, and refineries have limited ability to produce more diesel quickly.
That affects much more than drivers. Higher diesel costs raise the price of transporting food, building materials and other goods. Businesses may absorb some of the increase at first, but if prices stay high, more of it will eventually show up in freight costs and consumer prices.
The biggest question is whether the conflict spreads or starts to wind down. A wider disruption to oil supply or shipping could push prices higher, while a ceasefire, restored shipping and resumed production could bring them down. I would also watch refinery outages, fuel inventories, OPEC output and seasonal demand. High prices may eventually encourage more production and reduce consumption, but if refining is the constraint, the market needs time to add supply. That is why prices can stay high even after producers begin responding.