A New Form of Tax Is Costing American Households Hundreds More, and Economists Say Relief May Be Years Away

Nobody voted for it, nobody signed it into law, and there’s no line for it on a pay stub. But economists say Americans are paying a new kind of tax all the same. Since the U.S.-Israel war on Iran began on February 28, the cost of energy has surged across the country, squeezing household budgets in ways that extend well beyond the gas pump. Economists warn the conflict is functioning as a hidden tax on ordinary American households. 

The nearly three-month conflict has stoked fears that inflation will climb across the broader economy, limiting hopes for interest rate cuts in 2026. The latest Consumer Price Index from the Department of Labor confirmed those fears, showing that inflation has overtaken wage growth for the first time since 2023, erasing the benefit of any pay raises workers received over the past year. For millions of families, income that looked like a gain on paper has already been consumed. 

Justin Wolfers, an economist and professor at the University of Michigan’s Gerald R. Ford School of Public Policy, has framed the sustained rise in energy prices as an “Iran tax,” warning that it will continue to weigh on family budgets for months, and likely years. Markets, he noted, are already pricing in elevated energy costs through the next general election in 2028. That timeline, if accurate, transforms what many assumed was a temporary wartime disruption into something far more lasting. 

The Bill Is Already in the Hundreds

The financial damage is concentrated, first and most visibly, at the gas pump. The national average for a gallon of gasoline rose from under $3 before the February 28 attack to nearly $4 per gallon by late March, and economists project average annual household spending on gas will increase by $700 to more than $800 this year if current trends hold. That is a sustained hit to budgets, not a brief spike. 

As of late May, the average additional fuel cost to American households since the conflict began stands at $332.75, with projections showing that figure could reach $870 by end of summer. In total, Americans have collectively paid over $44.5 billion more to the oil industry since prices began rising. Those numbers cover only gasoline and diesel. The full economic toll runs considerably higher. 

Paul Dietrich, chief investment strategist at Wedbush Securities, explained that the damage goes beyond commuting costs. “When a war pushes oil up, it is not just a gasoline story,” he said. “Gas prices have already jumped sharply, and diesel costs are rising too. That means higher costs for commuting, groceries, shipping and basic household living.” When families redirect spending toward fuel and food, discretionary spending across the broader economy contracts. The ripple effect is already underway. 

Oil Is Just the Beginning

Wolfers described the economic mechanics clearly: “Think of an oil shock like a stone tossed in a pond. First splash: gasoline. Then the ripples: airfares, delivery costs, packaging, groceries, construction materials.” The war’s economic reach, in other words, is not limited to what drivers pay at the pump. It is embedded in the cost of nearly everything that moves, grows, or gets packaged. 

Oil and gas prices have risen more steeply in the wake of the Iran conflict than in other recent geopolitical disruptions, including the Russia-Ukraine war, the Suez Canal blockage, and the Hamas attack on Israel in 2023. Because the entire U.S. economy remains dependent on fossil fuels, higher oil prices lift costs across electricity, fertilizer, food, and basic goods. The effects are broad, and they compound. 

Mark Blyth, a professor of international economics at Brown University, told Newsweek that beyond oil, the closure of the Hormuz Strait had cut off supplies of plastic, petrochemical feedstock, and fertilizer inputs, setting the stage for food price increases as farmers absorb tighter margins. “Even if all this stopped tomorrow,” Blyth said, “it could take up to a year to normalize supply.” Agricultural prices, in short, are likely to climb even after any ceasefire. 

Why “Drop Like a Rock” May Not Hold

The administration has offered consistent reassurance. President Trump has repeatedly promised that prices will “drop like a rock” once U.S. military objectives are met, while National Economic Council Director Kevin Hassett suggested relief could come quickly ahead of the November midterm elections. The political incentive for optimism is clear. But many economists do not share it. 

Mark Zandi, chief economist at Moody’s Analytics, told Newsweek that even if the war ended immediately, a risk premium would remain built into oil prices. The reason: Iran has now demonstrated it can restrict the Strait of Hormuz at will, and markets will price in that capability indefinitely, regardless of whether a formal peace holds. That kind of structural repricing does not dissolve overnight. 

Wolfers acknowledged the administration’s prediction has a kernel of truth. Fuel prices would fall if the conflict ended. But he cautioned that the decline would not be as swift as the White House has previewed. “What you hear out of the White House is [that] as soon as things clear up in the Middle East…what we’ll see is oil prices coming down,” Wolfers said. “That part is true, but they’re not going to come down very quickly.” The “Iran tax” was never on any ballot. Getting rid of it, economists now agree, will not be as simple as ending the war.