President Donald Trump Claims Gasoline Prices Will “Drop Like a Rock” When the Iran War Ends, but He’s Completely Missed the Bigger Picture
The stock market has endured some of its wildest volatility under President Donald Trump, including the five-week COVID-19 crash in February-March 2020 and the week-long tariff tantrum in April 2025.
But more importantly, the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and tech-powered Nasdaq Composite (NASDAQINDEX:^IXIC) have soared with Trump in the White House. The average annual return of Wall Street’s major stock indexes under Trump has been higher than under most other presidents over the last 130 years.
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Since his second-term inauguration in January 2025, the Dow, S&P 500, and Nasdaq Composite have blasted to new highs, driven by the artificial intelligence (AI) infrastructure build-out, better-than-expected corporate earnings, and record S&P 500 share buybacks.
There’s no quick fix to inflation driven by President Donald Trump’s policies. Image source: Official White House Photo by Joyce N. Boghosian.
However, persistently elevated inflation, some of which traces directly back to Donald Trump’s policies, such as the Iran war, can no longer be swept under the rug. While President Trump has repeatedly opined that gas prices will “drop like a rock” once the Iran war ends, he’s completely missing the bigger picture concerning inflation and its effects on the U.S. economy and stock market.
Trumpflation is directly boosting consumer prices
When the U.S. economy is growing, it’s perfectly normal for consumer prices to modestly increase. This is to say that businesses should possess some degree of pricing power over their goods and services when they’re in demand.
What we’ve witnessed during President Trump’s second non-consecutive term is elevated inflation, driven by two of his policies (i.e., Trumpflation): tariffs and the Iran war.
Trump unveiled his “Liberation Day” tariffs in early April 2025, sparking the aforementioned tariff tantrum on Wall Street, which saw the indexes plummet over the course of a week. Even though the U.S. Supreme Court invalidated these tariffs in February 2026, their impact on consumer prices has persisted.
According to new research from three New York Federal Reserve economists writing for Liberty Street Economics (“How Fast Do Tariffs Pass Through into Consumer Prices”), Trump’s tariffs were estimated to have added 2.9 percentage points to consumer goods inflation by February 2026. When duties are added to imported goods, and those goods are used to manufacture a product domestically, it can increase production costs, resulting in higher prices for consumers.
The Trump-led Iran war is also directly influencing consumer prices. Shortly after the president green-lit military action against Iran on Feb. 28, the latter shut down the Strait of Hormuz to virtually all commercial vessels. This effectively halted the daily movement of approximately one-fifth of the world’s crude oil supply.
The reaction in energy markets was swift. Gas prices soared at the fastest pace in 30 years, while diesel prices climbed to an all-time high last month.
Last week, President Trump yet again proclaimed to reporters that fuel prices will plunge once the Iran war ends:
Gasoline prices are going down very rapidly. When the war ends, they’ll drop like a rock, and the war is going to end very soon.
While an official end to the Iran war may spark a brief dip in energy commodity prices, the president’s prognostication that gas prices will “drop like a rock” overlooks several key points.
Image source: Getty Images.
Trumpflation is becoming entrenched in the U.S. economy, and that’s terrible news for stocks
One of the president’s biggest misconceptions about the Iran war is that everything in the region would return to normal as soon as the conflict officially ends. In reality, it’ll take several months for energy infrastructure in the region to ramp back up. It may take even longer for oil reserves to be replenished.
Though the initial reaction in energy markets is likely to be favorable, persistent supply issues should keep fuel prices elevated for several quarters after the end of the Iran war.
But the bigger issue is that the Iran war is about much more than just energy prices. Even though rapidly rising gas and diesel prices have had the most visible impact on consumers’ wallets, evidence is mounting that the inflationary effects of this conflict have spilled beyond the energy sector and into the broader economy.
One of the Federal Reserve’s favorite inflation tools is Core Personal Consumption Expenditures (CPE). Core PCE excludes volatile food and energy expenses, giving the Fed’s policymakers a clearer picture of long-term price trends.
Whereas headline inflation, including energy and food costs, dipped significantly from a three-year high of 4.2% in May to 3.4% in September, Core PCE has hardly budged since May — falling from 3.2% to 3%. This indicates that inflationary pressures are mounting outside the energy sector.
Beyond rising fuel costs, the Iran war has caused some businesses to alter their shipping routes, change their modes of transportation, or shift to different suppliers. Furthermore, businesses are paying more for petroleum-based goods, such as plastics and synthetic polymers. While businesses may absorb some of these costs, Core PCE data shows that most of these expenses are being passed on to consumers.
The cumulative effects of persistent core inflation and ongoing energy supply disruption will likely lead to an aggressive Fed rate-hiking cycle. According to the CME Group‘s (NASDAQ:CME) FedWatch Tool, there’s a nearly 35% chance of the central bank raising interest rates by at least 100 basis points by September 2027.
Persistently elevated inflation, prominently caused by Trump’s policies, won’t end when the Iran war is over. That’s terrible news for a historically pricey AI-driven bull market, which has been partially reliant on debt to finance the data center build-out. If lending costs continue to rise, the AI infrastructure build-out could slow.
President Trump’s short-sightedness on fuel prices overlooks an array of headwinds that can negatively impact the U.S. economy and stock market.
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