When crude oil prices plummet, drivers shouldn't expect relief at the pump anytime soon. A new study from the Federal Reserve Bank of St. Louis, published in August 2026, finds that if oil prices had returned to pre-conflict levels by July 20 and stayed flat, gasoline prices would have taken roughly six months to drop within 25 cents of where they were before the U.S.-Iran conflict began. The report examines the "rockets and feathers" phenomenon—gasoline prices shoot up fast when oil surges but drift down slowly when oil falls—using pricing data from the February 2026 conflict to illustrate the persistent gap between crude and retail fuel costs.
The conflict, which started February 28, 2026, sent oil prices soaring from $66.96 per barrel on February 27 to $90.77 just one week later. Gasoline followed closely: the national average rose from $2.94 per gallon on February 23 to $3.02 a week later, then crossed $3.50 two weeks after that. Over the next three months, oil hit a peak of $114.58 on April 7 and remained above $85, while gasoline reached a weekly high of $4.50 on May 11. After a ceasefire announcement on June 3 and a preliminary U.S.-Iran agreement on June 17, oil prices tumbled from $99.76 on June 3 to $69.60 by July 6—nearly back to pre-conflict levels—yet gasoline still hovered around $4, sitting at $3.78 on July 6.
The report explains that gasoline prices consist of four main costs: crude oil, refining, taxes, and transportation. While oil accounts for roughly 50% of gasoline's input price, according to the Energy Information Administration, shifts in taxes and transport expenses can also move retail prices. The EIA estimates that a gallon of gasoline changes about 2.4 cents for every dollar change in a barrel of oil, though this relationship isn't exact and varies with the seasons and the direction oil is moving. Using an econometric model and data from January 1991 through July 2026, the authors found that deviations from equilibrium create pressure for gasoline to return to balance, but the speed of adjustment is faster when oil climbs than when it falls.
The report points to two potential explanations for this asymmetry. First, gas stations hold market power and can keep prices high to preserve profit margins—retailers hike prices quickly when oil rises but lower them slowly because consumers shop infrequently and get used to elevated costs, according to a 1997 study by economists Severin Borenstein, A. Colin Cameron, and Richard Gilbert cited in the report. Second, supply chain disruptions—like Hurricane Katrina's 2005 impact on Gulf refineries—prompt refiners to raise prices to curb demand and prevent shortages. The report warns these factors mean drivers could face high prices for the foreseeable future, especially if the U.S.-Iran conflict continues.