Spiking Gasoline Prices May Wipe Out Larger Tax Refunds Touted by Trump
Since the U.S. launched military operations against Iran on February 28, gasoline prices have risen by 81 cents per gallon, from $2.98 to $3.79. For the typical family, the higher prices will take a meaningful bite out of their budget, costing them an extra $68 this month.1
In late January, the Trump Administration touted the larger tax refunds households would receive this winter under the One Big Beautiful Bill Act. According to the most recent IRS data, refunds are running $360 larger on average than at the same time last year. Morgan Stanley and the Tax Foundation estimate they will be $534 and $748 larger, respectively, by the end of tax season.
We build a simple model of the pass-through of crude oil prices to retail gasoline prices and use it to estimate that households will pay an extra $740 in gas costs this year if oil prices follow Goldman Sachs’ post-intervention forecast, wiping out most or all of the larger tax refunds on average.
Our Analysis
We estimate the relationship between retail gasoline prices and crude oil prices using historical data, then apply Goldman Sachs’ baseline Brent crude oil forecast to project retail gas prices for the remainder of the year.
The model is a Bayesian vector error correction model that accounts for asymmetric price transmission to capture the well-known “rockets and feathers” phenomenon. The model includes a single lag and controls for seasonality in gasoline prices; results are robust to alternative choices.
In the chart below, the left panel shows observed and forecast Brent crude oil prices for 2026; the right panel shows observed and forecast national average retail gasoline prices from our model. The solid line is based on Goldman Sachs' baseline Brent crude oil forecast from March 17, 2026 (post-war), and the dotted line is based on the beginning of March forecast (pre-war).
The Goldman Sachs forecast assumes a three-week Strait of Hormuz closure, with crude prices topping out at $110 per barrel in March, retreating half of the way back to the pre-war baseline by April and 85% of the way back by June. Under this scenario, we forecast retail gasoline prices to peak at $4.36 per gallon in May before declining more slowly, reflecting the rockets and feathers phenomenon. A longer closure would push crude, and therefore retail gasoline prices, higher.
Relative to a counterfactual in which crude oil follows its pre-war forecast, our estimates imply that the average household will pay $740 more in gas costs over the remainder of the year, holding demand fixed. The chart below shows the projected increase in household gas costs alongside refund estimates from the IRS, Morgan Stanley, and the Tax Foundation.
Like all forecasts, our estimates rely on assumptions. The Goldman Sachs crude oil forecast assumes the Strait of Hormuz remains closed for roughly three weeks; if the conflict or the situation around the Strait evolves, our estimates would change accordingly. Average figures also mask substantial variation across households. Non-drivers and electric vehicle owners face no increase at the pump, while households with long commutes may face considerably higher costs. Refund amounts also vary, with households experiencing changes that are smaller or larger than our average estimate.
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Given the preponderance of natural gas in the US - whose price has risen in tandem with oil - EV drivers will also face increases at the "pump". Also, most estimates point to a price elasticity of gasoline of around -0.3.
Not for those who have, for a long time now, paid attention to the warnings of the scientific community about anthropogenic climate heating, who actually gave a damn about the world, and chose vehicles that were not obnoxiously large gas-guzzlers.