Oil prices briefly surged above $126 a barrel Thursday, the highest in four years, as traders worry about escalation in the U.S.-Iran war.
Brent crude has nearly doubled since the start of the year, while U.S. gas prices hit a four-year high of $4.30 a gallon, according to AAA. Economists warn the disruption could trigger a global recession if it extends into the second half of the year.
President Donald Trump has hinted on social media in recent days that conversations are happening, but there are no plans for a formal meeting in Pakistan in the coming days. There have been no updates on that for several days, after Trump canceled his envoy from going to the Middle East late last week.
The Great Lakes region is being hit especially hard. Michigan's statewide average is $4.58 a gallon, and Ohio's is $4.46 a gallon. Some stations are reporting prices as high as $4.99, with one station in Detroit at $6 a gallon.
Trump has suggested Iran's economy is on the verge of collapse, pointing to the blockade of the Strait of Hormuz cutting off the country's ability to export oil. Iran has pushed back on that characterization.
Iran's Supreme Leader issued a written statement, read on Iranian state television, saying that the only place Americans belong in the Persian Gulf is at the bottom. The statement was notable in that it was not delivered as a speech, and the Supreme Leader has not been seen publicly in Iran, fueling speculation about his condition.
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When asked Wednesday which conflict — Russia-Ukraine or U.S.-Iran — might end first, Trump suggested both were on similar timetables. A four-to-six-week timeline for the conflict had been mentioned frequently at its start.
Federal Reserve Chairman Jerome Powell addressed the economic uncertainty Wednesday in Washington.
"Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook, and we will remain attentive to risks to both sides of our dual mandate," Powell said.
The statement raises questions about the direction of interest rates. Rate cuts had been widely anticipated through much of 2026, but rising fuel prices and the threat of inflation could push the Fed to raise rates instead.
Secretary of Defense Pete Hegseth is expected to testify before the Senate Thursday. In a combative hearing Wednesday, Hegseth revealed the military cost of the war has reached $25 billion — roughly $400 million a day — a figure some in Washington believe may be on the lower end of estimates.
When responding to Democratic criticism and questions about recent Pentagon policy decisions, Hegseth said:
"The biggest challenge, the biggest adversary we face at this point are the reckless, feckless and defeatist words of congressional Democrats and some Republicans," Hegseth said.
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Axios is reporting Thursday that Trump is being briefed on new military options by the Pentagon, raising the possibility of a resumption of combat operations.
The U.S. produces more oil than Saudi Arabia and is less reliant on Middle Eastern supply than Europe or Asia. But oil is a globally traded commodity, and near-record prices are already affecting consumer behavior and broader economic conditions.
Europe is facing fuel shortages and discussing mass flight cancellations due to jet fuel supply issues. Asia is also discussing rationing, though no such measures are being considered in the United States.
Diesel prices are also setting records in many states, with the national average nearing an all-time high. Economists warn diesel costs carry an outsized inflation risk, as the fuel powers the trucks and farm equipment that move food and goods to market — costs that are ultimately passed on to consumers.
Hegseth is also seeking nearly $1.5 trillion for the 2027 budget, with significant allocations for drones, warships, and missile defense systems. Some military experts and retired officers have raised concerns about U.S. stockpiles of weapons such as Patriot missiles and Tomahawks, particularly given ongoing commitments and the potential need to respond to other international incidents, including a possible conflict over Taiwan.
