Oil markets moved fast when the United States and Iran announced a two-week ceasefire Tuesday evening. Crude prices fell more than 16%, markets across Asia and Europe surged between 4% and 5%, and Wall Street futures shot higher before Wednesday’s opening bell. The Dow added more than 1,000 points. For a moment, it felt like a turning point.
But for drivers staring down a $4.16 average gallon of gas, the road to relief is far longer.
What the ceasefire actually changed at the pump
According to AAA, the national average price for a gallon of gasoline has climbed $1.18 since fighting broke out on February 27. Getting back down to $4 a gallon could take one to two weeks, according to GasBuddy. Returning to pre-war prices below $3 could take several months, analysts say.
The reason comes down to how gas pricing actually works. Retail prices are set by station owners based on what they pay at the wholesale level. When wholesale costs rise sharply, retailers absorb some of the increase to stay competitive. When wholesale prices fall, those same owners tend to hold prices higher longer to recover the margins they lost on the way up.
As one longtime oil analyst put it, gas prices go up like a rocket and come down like a feather.
GasBuddy said that within 48 hours of the ceasefire announcement, retail prices should begin edging down by a few cents each day. That is a start, but it is nowhere near the kind of immediate relief many drivers were hoping for.
The Strait of Hormuz remains the real question
The deeper issue is whether oil can actually move again through the Strait of Hormuz, the narrow waterway through which roughly 20% of the world’s oil normally flows. That channel has been largely closed during the conflict, and restoring full transit is far from guaranteed even with a ceasefire in place.
Analysts at trade data firm Kpler noted that shipping companies remain hesitant to attempt the crossing. The terms of safe passage are still unclear, and Iran has continued to assert some control over the strait. Iranian media reported Wednesday that the strait had been closed again following Israeli strikes on Hezbollah in Lebanon, adding another layer of uncertainty to an already complicated situation.
Even if the strait reopens completely, production from Gulf states will take time to recover. Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Bahrain collectively shut down an estimated 7.5 million barrels per day of output in March, according to the U.S. Energy Information Administration. Oil infrastructure in the region suffered widespread damage over six weeks of fighting, and storage capacity in several countries ran out entirely during the conflict.
A new cost of doing business in the region
Restoring oil flow may also come with a price tag. During the conflict, Iran charged some shipping companies a reported $2 million fee to guarantee safe passage through the strait. President Trump told ABC News on Wednesday that such fees could eventually be shared between Iran and the United States. Economists at Capital Economics estimated that transit fees in the range of $1 million to $2 million per tanker would add roughly $1 per barrel to the cost of oil moving through the waterway, a cost that would ultimately work its way through to consumers.
The United States produces more oil than any other country and imports relatively little through the strait. But oil is a globally traded commodity, and supply disruptions anywhere ripple outward to affect prices everywhere, including at American gas stations.
Markets rally, but caution runs deep
The ceasefire lifted spirits across global financial markets. Airlines and cruise operators were among the biggest winners, with shares of American Airlines, Delta, Carnival and Norwegian Cruise Line all rising sharply as fuel cost expectations fell. Bank stocks gained as risk sentiment improved. Energy companies including Exxon Mobil, Chevron and Occidental Petroleum fell on lower crude prices.
Interest-rate futures now show a 56% probability of a quarter-point rate cut by the end of 2026, up from expectations of at least two cuts earlier in the year. Investors will be watching comments from Federal Reserve officials and the minutes of the March meeting closely in the days ahead.
For now, the mood on Wall Street is cautiously optimistic. The bigger question is whether that optimism holds as the harder work of diplomacy begins.
