Gas prices at the Shell Station on Foothill Blvd.
Robert Gauthier | Los Angeles Times | Getty Images
Rising oil prices may be more than just a headwind to President Donald Trump’s fight to rein in inflation. They could also undermine his signature legislative accomplishments.
If oil prices remain more than $20 higher than before the U.S.-Iranian war, Raymond James said, nearly all of the economic benefits of the individual tax cuts included in the “big, beautiful bill,” such as lower withholdings and easier tax refunds, could be canceled out.
“Last week’s $25 price move effectively offsets the financial gains from OBBA if oil prices remain at this level,” strategist Tavis McCourt said in a note.
McCourt’s analysis relies on extrapolating oil market price increases to the more than $420 billion consumers spent on gasoline in the fourth quarter of 2025. In an interview with CNBC, McCourt said the company takes into account both the potential reduction in demand from higher prices and the need for companies to make up their margins.
This led him to conclude that if oil prices increased by $20, consumers could spend an additional $150 billion at the pump. The Tax Foundation estimates that this big, beautiful bill will result in a total of $129 billion in individual tax cuts in 2025, the vast majority of which will be realized through tax refunds this filing season.
On February 27, prewar U.S. crude oil prices ended at $67.02. As of Tuesday morning, oil prices were still trading at $88.20 per barrel, more than $20 higher, after wild price swings on Monday.
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@CL.1 Since the February 27th chart.
Stefanie Ross, chief economist at Wolf Research, said in an interview Monday that her estimate of the potential hit to consumers from higher oil prices is similar to the increase in spending she predicted from the tax law. But Wolf said in a note Tuesday that that would require oil prices to stay above $100 for some time.
“In all of these scenarios, it needs to last longer than it is now,” Ross said. “So far, the impact on gas prices has been short-term and small compared to how it will ultimately play out.”
However, even if the Iran war ends, it will take time for oil prices to fall. President Trump said in an interview with a CBS News reporter on Monday that the end was “very complete,” but did not say at a subsequent news conference when the war would end.
McCourt noted that it took about six months for oil prices to return to levels before they soared following the 1990 Gulf War and Russia’s 2022 invasion of Ukraine.
Results of weak stimulation
Fiscal stimulus through the tax law is expected to boost the economy in 2026, and some economists predict that U.S. growth will accelerate again, in part because of it.
Now, the oil price shock is hitting consumers just as they are trying to get their refunds on these taxes. Citadel Securities estimated last week that only 30% of refunds had been issued by March 1st, and that it expects that number to rise to about 75% by May 1st.
“The bottom line is that if you were hoping these tax refunds would boost consumer spending, higher oil prices are just diverting all that cash to energy costs,” Gabriel Shahin, CEO of Falcon Wealth Planning, said in an email to CNBC. “This would essentially negate the economic impact we were hoping for.”
But Dan Niles, a portfolio manager at Niles Investment Management, described the situation as tax refunds helping the economy weather rising oil prices.
He already believes consumers can do that, pointing to when oil prices hit similar prices in 2022 and 2023, while Wall Street was broadly predicting a recession due to rising interest rates.
“You’ve already been tested for that stress a little bit,” Niles said. “So if that was the case then, and we are coming out of the inflation spike in 2021 and are not yet in a recession, why do we think that a 3% drop in inflation and $100 oil prices will cause a recession now?”
Many on Wall Street have pointed to similarities between the latest price spike and the one four years ago when Russia invaded Ukraine.
But Ross cautioned investors against relying too much on that comparison.
“The economic context does not reflect where we are today,” she said. “Core inflation was running at 5.5% versus 3% today. Employment growth was running at about 500,000 jobs and in the last few months it’s now at 37,000 jobs. So it’s a completely different context.”
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Year-to-date chart of .GSPD vs. .SPX.
McCourt added that even if the big, pretty bill stimulus isn’t as strong as originally thought, it probably won’t change his outlook for the year too much, especially for stocks, which he believes never priced in a big jump in consumer spending. He pointed out that consumer discretionary stocks will underperform the S&P 500 in 2026.
But he also believed that as long as the labor market remained healthy, the stock market as well as the economy could withstand oil prices and weaker-than-expected stimulus.
“We’ve never seen a sustained decline in consumer spending without significant job losses,” McCourt said. “There will be some changes in spending…but it probably won’t affect overall consumer spending levels.”
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