The average price of U.S. gasoline fell below $4 a gallon Thursday for the first time since the conflict between the U.S.-Iran war began more than three months ago, according to the The New York Times.
Consumers saw gas prices drop slightly early this week as discussions for a compromise grew more serious. The agreement, known as the “Islamabad Memorandum of Understanding,” was signed by leaders from both the U.S. and Iran, despite pushback from some Republicans.
Pakistani Prime Minister Shehbaz Sharif, who helped mediate the deal, posted on X that the U.S. and Iranian presidents signed the agreement electronically, leading to the reopening of the Strait of Hormuz. Part of the preliminary agreement includes a 60-day period for a nuclear deal to be reached, the U.S. naval blockade on Iranian ports to lift and sea traffic to be restored to prewar volume.
In the U.S., the national average for a gallon of regular gasoline dipped just below $4, down from $4.03 the day before, according to AAA. Before the conflict began in late February, the average gas price hovered just below $3, though prices peaked around $4.50 a gallon in May, according to the Times.
Gas prices remain highly regionally. In the West, prices are still well above $4 a gallon in some areas, while motorists in the South were the first to see averages drop below $4, with some areas nearing $3.50 per gallon, according to the Times.
In Utah, the average cost per gallon is $4.14.
Economists warn it takes time for lower oil prices to reflect in the cost of gasoline.
Refineries typically pay for crude oil a month or more in advance, so processed products will not immediately be cheaper after oil prices drop, according to The Associated Press.
“The tendency of gasoline prices to fall slowly is partly because the raw material takes weeks to work through the system until it’s delivered to consumers,” Michael Lynch, a fellow at the nonpartisan Energy Policy Research Foundation, said, according to AP.
Mark Barteau, a professor of chemical engineering and chemistry at Texas A&M University, noted that gas prices may take longer to drop on the West Coast and other areas lacking enough local refining capacity, according to AP.
“The bottom line is that getting back to ‘normal’ will be a lengthy process involving many parties and countries,” Barteau said. “Getting an agreement between the U.S. and Iran to open the strait is just the beginning.”
The cost of groceries and other goods
The reopened strait is unlikely to give shoppers instant relief at the grocery store, according to David Ortega, a professor of food economics and policy at Michigan State University, AP reported.
It can take months for an energy shock to work its way through the food supply chain and raise grocery prices. Once those prices go up, it takes a long time for them to drop, especially amid an unpredictable future, Ortega said.
While Americans felt the impact of higher gas prices at the pump, in grocery stores and while traveling, experts warn it could take a while before consumers see relief on household goods and groceries.
“We’re likely still looking at inflationary pressure on food in the coming months,” Ortega said. “There’s still a good deal of uncertainty about how the reopening will unfold, and it will take time for fuel, diesel and retail fertilizer prices to come back down.”
Other expenses, including airfare, retail and shipping, are also unlikely to drop immediately.
Still, oil prices fell about 10% this week alone as peace talks took place, according to the Times.
“We’re getting close to the numbers we were before the war started,” President Donald Trump said on Monday in France at the annual Group of Seven summit, the Times reported.
