Texas fuel prices have risen significantly since the U.S.-Israel war on Iran began on Feb. 28, which led to Iran closing a key international shipping lane for oil and gas, the Strait of Hormuz.
The average price for a gallon of gas in Texas, which was $2.55 in early February, surged by nearly two dollars to $4.52 on Monday, according to the AAA.
The Strait of Hormuz, a narrow maritime corridor south of Iran, accounts for one-fifth of the world’s oil supply — the energy trade passing through it was valued at roughly $600 billion annually. Any threat to shipping in the strait can affect oil prices globally.
In an April poll conducted by The Texas Politics Project, 61% of 1,200 registered Texas voters said they were "very concerned" about the price of gas — a 23-point jump compared to the same poll in February — while another 25% said they were "somewhat concerned."
Here’s what Texans need to know about gas prices:
How are oil barrel and gas prices decided?
Oil and gas prices are determined through supply and demand. Traders sell contracts on an open market and bargain over future prices based on factors that affect supply and demand, like geopolitical events, increased demand during summer months when people travel more and the emergence of new oil sources.
Gas prices are more directly linked to the price of a barrel of oil as well as transportation costs, said Jeff Rubin, Senior Vice President at Upside, a retail technology platform. After crude oil is extracted from the ground, it is transported to a refinery, which produces the gasoline that’s shipped to local markets. State gas taxes, like Texas’ 20 cents per gallon tax, the distance the gas must be shipped, the octane of gasoline and local competition also affect prices.
Do bigger oil company profits mean more tax proceeds for the state?
The war has become a windfall for oil companies, whose product became much more valuable almost overnight. In fiscal year 2025 — which begins in Texas on Sept. 1 — the Texas oil and natural gas industry paid $27 billion in state and local taxes and state royalties, which marked the second-highest total in state history.
Todd Staples, president of the Texas Oil and Gas Association, said that revenue represents roughly $74 million per day to the state, which uses it to help pay for public schools, universities, roads and first responders.
Rubin said he expects this year's profits to be higher for Texas oil companies because the war has pushed oil prices higher.
What is the strategic oil reserve and is it helping mitigate gas prices?
The U.S. has a massive stockpile of emergency crude oil funded and managed by the federal government. The U.S. strategic oil reserve is the largest such supply in the world, with an authorized capacity of over 700 million barrels, and is stored in four cities, including Houston and Beaumont. Starting in mid-March, the U.S. began to release 172 million barrels of oil from the reserve over the course of 120 days.
Historically, tapping the reserve is a short-term method to help lower gas prices. The U.S. Treasury Department’s analysis of major releases — like the one following Russia's invasion of Ukraine in 2022 — estimated that they reduced gas prices by 17 cents per gallon. The U.S. consumes roughly 20 million barrels of oil daily, so even the most aggressive releases from the oil reserve would amount to just a few weeks of total supply.
Is the war increasing drilling in Texas?
New oil wells and rigs are expensive, and because of the uncertainty surrounding when the war will end, companies are hesitant to spend a lot of money developing new oil sources that may not be needed if the Strait of Hormuz reopens and oil supply returns to pre-war levels, said Jordan Blum, energy editor at Fortune.
Rubin said companies are likely to increase pumping from existing wells rather than invest in drilling new ones.
“Obviously consumers don't like high prices because it costs them more money, but people who have drilling rights and facilities to pump … they may leave those pumps dormant [when] the price is too low,” Rubin said. “It doesn't make economic sense for them. But when it gets to $100 it makes economical sense for them. Then they do a lot more drilling out there.”
When will gas prices go back to normal?
For gas prices to return to normal, global markets would first need to come back to balance, said Ed Hirs, a University of Houston energy fellow and energy economics professor. Normal shipping traffic would have to return in the strait, which the Pentagon said could take six months after the U.S.-Iran war concludes, and Kuwait, Iraq, Bahrain and the UAE, who have shut down their oil wells under threat of Iranian strikes, would need to restart their oil production, he said.
After global markets reach an equilibrium, gas stations would implement the “rocket and feathers” effect — an economic phenomenon where retail prices shoot up rapidly when wholesale oil prices increase and fall slowly when they decrease. Retailers price items based on what it will cost to replace their inventory instead of what they originally paid for it, so it would take several months at least for gas prices to for prices to collapse back down.
“It's going to take a while,” Hirs said. “If peace were to break out today, we would not see oil gasoline prices back to prior levels for six to nine months under the most aggressively positive scenarios you can come up with.”
Disclosure: The Texas Oil & Gas Association and University of Houston have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.
This article first appeared on The Texas Tribune.