US consumer sentiment has plummeted to an all-time low of 44.8 in May, according to the University of Michigan's Surveys of Consumers, as surging gasoline prices driven by the Iran war intensified cost-of-living pressures. The index dropped from 48.2 earlier this month and 49.8 in April, with economists polled by Reuters having forecast the index unchanged at 48.2. Sentiment among Republicans fell to the lowest level since November 2024, with the deterioration mirrored in other independent surveys. A Reuters/Ipsos survey this week showed Trump's presidential approval rating fell to nearly its lowest level since he returned to the White House, hit by a drop in support among Republicans. The growing discontent is a warning sign for Trump and his Republican Party as they seek to hold their majorities in the November midterm elections.
Americans have now shelled out nearly $45 billion in extra fuel costs since the US and Israel launched their war on Iran in late February, with the national average for regular gasoline climbing to $4.552 per gallon on Friday - up more than 50% since the war began on February 28. According to Brown University's "Iran War Energy Cost Tracker," Americans have spent about $24.97 billion extra on gasoline alone while diesel accounts for another roughly $19.85 billion in higher costs. The surge has been driven largely by turmoil surrounding the Strait of Hormuz - the narrow Persian Gulf shipping lane through which a massive share of the world's crude oil supply flowed prior to the war. GasBuddy petroleum analyst Patrick De Haan warns that gasoline could surge past $5 per gallon sometime in June if shipping through the Strait of Hormuz remains frozen. Latest data from the American Automobile Association (AAA) shows gas prices have climbed to their highest level in four years as the ongoing war continues to disrupt global oil market supplies.
The war's economic impact is spreading beyond US borders, with European Union officials saying Europeans can expect oil and gas prices to remain above what they were before the Iran war for at least until the end of 2027. EU Economy Commissioner Valdis Dombrovskis said that higher energy prices are primarily responsible for driving inflation to a forecast 3.1% for this year and 2.4% for 2027 - significantly higher than the earlier forecast for this year of 1.9%. Higher inflation may erode the purchasing power of common citizens as the costs of food, transportation, and even education and medical care may rise. This could lead to cutting on luxury expenses such as eating out or holidaying. For investors, the situation is also challenging, as higher inflation increases input costs, eroding companies' profitability and leading to modest market returns that may be further lower, adjusted for inflation. Gold prices retreated by ₹600 to ₹1.64 lakh per 10 grams in the national capital on Friday as tentative progress in US-Iran negotiations reduced precious metals buying, though unresolved tensions around the Strait of Hormuz kept traders cautious.
India is taking proactive measures to manage the economic fallout, with Union Minister Piyush Goyal saying the government is considering several steps to contain the widening Current Account Deficit (CAD). The Reserve Bank of India's board has approved a record ₹2.86 trillion rupee ($29.9 billion) payout to the government to help bolster New Delhi's coffers at a time when public finances are strained due to high global oil prices. The rupee rose for the second consecutive session on Friday to close at 95.73 (provisional) against the US dollar on softening of crude oil prices and supposed intervention by the Reserve Bank. The rupee rallied to close above the 96-per-dollar mark for the first time in a week, helped by RBI's aggressive interventions to arrest the currency's slide from 94.50 to nearly 97. The RBI sold $2 billion to $3 billion on Thursday and intervened in the markets again on Friday, with two state-run lenders consistently selling dollars through Friday's trading session.
Despite the economic pressures, diplomatic efforts are showing some progress with US Secretary of State Marco Rubio saying there was "slight progress" during talks with Iran amid uncertainty as to whether a deal will be reached or war will resume. Iranian officials are "in the process of responding to a text submitted by the US, which "has narrowed the gaps to some extent," the semi-official Iranian Students' News Agency reported. However, conflicting statements on key issues leave it unclear if the two sides are closer to a deal after renewed threats of escalation. The US and Iran have just a "50-50" chance of reaching an agreement that would free up the Strait of Hormuz, according to a senior UAE official. Presidential adviser Anwar Gargash urged Tehran not to overplay its hand in the stop-start negotiations during the Middle East war's fragile ceasefire, warning that "Iranian officials have missed a lot of chances over the years because there's a tendency to overestimate their cards."
The Trump administration has acknowledged the rise in gas prices but maintains that preventing Iran from obtaining nuclear weapons remains a priority. President Donald Trump said on Thursday that the conflict in Iran would "end soon" and have positive impacts on the domestic economy. "And this is with the Iran conflict that will end soon, very soon, and when it ends, your gasoline prices will go down lower than they were before," Trump said. The White House has also acknowledged the economic impacts, with the administration working with the International Energy Agency to get 400 million barrels of oil and refined products released, including 172 million barrels from US reserves. White House spokesman Taylor Rogers stated that "President Trump will never allow Iran to possess a nuclear weapon, and he will continue to advance America's core national security interests."
