Trump to suspend US gas tax as Iran war spikes prices

Trump gas tax suspension hits Congress as Iran war drives US pump prices to $4.90

Muhammad Asghar | GlobalBeat

President Donald Trump announced a 90-day federal gas tax holiday on Tuesday after crude jumped $8 overnight when Israeli jets struck Iranian refineries.

The suspension would save drivers 18.4 cents per gallon and marks the first time a US president has halted the highway fund levy since it was created in 1932.

Pump prices averaged $4.90 nationwide by dawn, up 42 cents from Monday, according to AAA. The spike erased two months of declines and threatens to add $600 to the typical household’s annual fuel bill if crude holds above $90 a barrel through summer.

Trump signed the order aboard Air Force One en route to Florida, aides confirmed. The measure needs congressional approval because the 18.4-cent diesel and gasoline excise feeds the Highway Trust Fund that finances roads, bridges and transit. White House budget officials said they would back-fill the estimated $15 billion shortfall with tariff revenue collected on Chinese imports. Critics called the plan a stunt that would starve states of infrastructure cash weeks before the summer driving season.

Senate Republicans offered immediate support. “Working families need relief, not lectures,” Senator John Barrasso of Wyoming told reporters. Democrats warned the move was election-season theatrics. “Pausing the gas tax is a Band-Aid on a bullet wound,” Senator Maria Cantwell said on the floor. She demanded instead a windfall-profits levy on oil majors whose shares surged 6 to 9 percent in pre-market trading. Shares of ExxonMobil and Chevron both hit 52-week highs before paring gains.

Oil markets convulsed after Prime Minister Benjamin Netanyahu confirmed Israeli warplanes hit “strategic fuel sites” near Bandar Abbas. Brent futures touched $91.70, the highest since October. US benchmark West Texas Intermediate settled at $88.42, up 7.3 percent. Analysts at ClearView Energy Partners warned prices could breach $100 if Iran attempts to close the Strait of Hormuz, gateway for a fifth of global supply.

Gas station owners reported panic buying from Ohio to California. “Lines wrapped around the block by 7 a.m.,” said Ramon Ortiz, manager of a Shell outlet in Phoenix. Several wholesalers imposed emergency rationing, limiting retailers to 7,000-gallon loads, half the normal volume. Local media in Atlanta showed drivers sleeping in cars after pumps ran dry.

AAA spokeswoman Ellen Edmonds said the national average could hit $5.25 by the weekend. “Every extra dollar at the pump pulls $130 million a day out of consumer pockets,” she wrote in a note. Retail spending data already showed furniture and restaurant sales slipping last week, she added.

The timing collides with federal budget negotiations. Congress must fund the government past Sept. 30, and House conservatives have vowed to oppose any back-fill for the Highway Trust Fund. “We can’t keep robbing Peter to pay Paul,” Representative Chip Roy of Texas said outside the Capitol. State officials warned the trust fund could slide into insolvency by December without the usual gas-tax inflow. Twenty-six states rely on federal money for more than half of road repairs.

Background

Congress last tinkered with the federal gas tax in 1993, adding 4.3 cents under President Bill Clinton. The levy has since lost half its purchasing power to inflation, leaving a $2.6 trillion backlog of bridge and highway repairs, according to the American Society of Civil Engineers. Previous presidents, including George W. Bush and Barack Obama, resisted calls to suspend the tax during price spikes, arguing it would sap infrastructure budgets for minimal consumer gain.

Oil markets have gyrated since Trump ordered the US withdrawal from the Iran nuclear accord in 2018. Sanctions removed roughly 1 million barrels a day of Iranian crude from the market. Prices soared past $120 in 2022 after Russia invaded Ukraine, fell below $70 last year on weak Chinese demand, and now face fresh supply threats as Israel widens its air campaign against Tehran’s atomic and energy sites.

What’s Next

House leaders plan a snap vote on the tax holiday Thursday, but passage remains uncertain. If approved, the Treasury would instruct refiners to stop collecting the 18.4-cent levy at midnight Friday. The White House threatened to keep Congress in session through the weekend if lawmakers balk. Futures traders are pricing in a 62 percent probability of $100 oil before July 4, CME data shows.

The episode risks rekindling inflation that had cooled to 2.7 percent in April. Fed Chair Jerome Powell testifies on Capitol Hill next week and must decide whether rising energy costs warrant postponing expected rate cuts. With the presidential election 18 months away, voters will soon know whether cheaper fill-ups outweigh potholed interstates.