Economists say Iran War will Impact Energy Costs in The US

American households are now carrying an average of US$447.19 in extra energy costs since late February, when the US entered into conflict with Iran. According to analysts from Moody's Analytics, this translates to close to US$60bn in cumulative expenses across the nation.

The costs have been driven by sharp price increases in petrol, diesel and jet fuel over three months of fighting. Mark Zandi, Chief Economist at Moody's, has warned that the economic impact could worsen.

"Unless the war ends soon, financially pressed consumers will have no option but to turn more cautious in their spending, threatening the already soft economy," he says, speaking with CNBC.

If energy prices stay at current levels through February 2027, the average household could face nearly US$2,000 in additional costs. At a time when many Americans already face affordability pressures, such costs could strain household budgets further.

Petrol prices drive household burden

Roughly half of the additional household expenditure stems from higher petrol prices. According to data from AAA, unleaded fuel averaged US$4.39 per gallon in late May, representing a rise of more than 47% since early March.

The scale of price increases varies by location. An NBC News analysis of AAA county-level pricing data showed that Kingsbury County in South Dakota recorded the highest increase in the country at 87%, with petrol reaching US$4.57 per gallon, an increase of US$2.13 since the war began.

Whitley County in Indiana saw prices rise by just US$0.73 per gallon over the same period. State-level policy has played a role in some areas.

Georgia suspended its US$.033 per gallon state fuel tax in mid-March, helping keep its average price increase to US$1.18, the second-lowest in the nation. Illinois recorded the steepest state-level rise in the US, with average prices up US$1.84 per gallon.

Diesel and aviation fuel costs climb

Diesel prices have risen by approximately 47% since early March to around US$5.52 per gallon. The fuel is used widely in haulage, delivery vehicles and shipping.

According to Moody's Analytics, American consumers are now paying an additional US$20bn for diesel. This makes it the single largest component of the overall energy cost increase after petrol.

Airline passengers have also faced higher costs, with rising jet fuel prices contributing nearly US$10bn in additional consumer expenses. According to federal inflation data, fares in April were more than 20% higher than a year earlier.

Consumer balance sheets under pressure

The financial squeeze is beginning to show on household finances. The personal savings rate fell to 2.6% in April, one of its lowest readings since the global financial crisis, as households continue to draw down reserves built up during the pandemic era.

According to the New York Federal Reserve, American credit card debt reached US$1.25tn in the first quarter of 2026. This represents an increase of close to 6% year on year and approaches the all-time record set at the end of 2025.

Gregory Daco, Chief Economist at EY-Parthenon, described the situation to CNBC: "Consumers are increasingly facing an income squeeze, which is forcing them to use savings, credit and wealth to sustain their spending patterns," he says.

Personal income growth came in flat in April, missing economists' consensus forecast of a 0.4% increase. According to Goldman Sachs, elevated energy prices will continue to erode consumers' spending power through the rest of 2026, with lower-income households expected to feel the effects most acutely as they spend a proportionally larger share of their budgets on food and energy.

The strain is beginning to surface in corporate commentary. Costco reported record-breaking petrol volumes at the close of its most recent fiscal quarter, as drivers sought out the wholesaler's competitively priced fuel.

Chris Kempczinski, CEO of McDonald's, warned this month that consumer spending among lower-income groups "may be getting a little bit worse" as energy costs continue to bite. This could signal shifts in spending patterns for businesses targeting price-sensitive consumers.

Moody's analysis also noted that the energy cost increase has more than wiped out the estimated US$384 per household benefit from larger tax returns under President Donald Trump's fiscal legislation. According to Mark, most of the gains from those tax measures have already been used up.

The combination of depleting savings, rising debt and stagnant income growth could mean reduced consumer spending power for the remainder of 2026. This could present challenges for businesses dependent on discretionary consumer spending.