Americans could soon pay more at the pump as the U.S.-Iran conflict disrupts oil markets, while lawmakers debate suspending the federal gas tax, a move Canada has just taken.
Similar plans have been discussed in the U.S., but have yet to advance. In early March, Democrats in both the U.S. House and Senate proposed suspending the 18.4 cents-per-gallon federal gas tax through Oct. 1. Some states have also proposed suspending their state-level gas taxes. Canada’s federal gas tax is about 28 cents a gallon.
Carney’s announcement on Tuesday came after marathon talks between the U.S. and Iran failed to make progress on Monday, even after the two sides agreed to a tentative two-week ceasefire. The conflict has brought ship traffic through the Strait of Hormuz to a standstill, disrupting global oil markets and sending prices up.
Carney said the government is temporarily suspending the federal Fuel Excise Tax on gasoline and diesel across Canada, effective April 20. The move is expected to save Canadian motorists money at the pump, but will cost the government about $2.4 billion in revenue (about $1.74 billion in U.S. dollars). The government is also temporarily suspending the federal Fuel Excise Tax on aviation fuels.
“We’re cutting your taxes, reducing the costs of your homes, and providing you relief at the pump,” Carney said in a statement.
The Committee for a Responsible Federal Budget, a U.S.-based think tank, found suspending the U.S. federal gas tax would cost about $3.5 billion a month and speed up the insolvency of the Highway Trust Fund. Federal gas tax revenue goes into the Highway Trust Fund to pay for the interstate highway system and other infrastructure.
The group said suspending the U.S. tax would only marginally help consumers while adding to the federal government’s growing debt.
Gas prices could continue to climb for American motorists, said Patrick De Haan, head of petroleum analysis at GasBuddy.
“Wth a breakdown in talks and renewed escalation over the weekend, motorists should prepare for another round of price increases,” he said. “The move toward a full blockade of the Strait of Hormuz is compounding global supply concerns and risks further disrupting flows … As a result, gasoline prices are likely to jump again this week, with diesel expected to follow, until there is a meaningful restoration of shipping through the Strait.”
On Monday, U.S. talks with the Islamic Republic stalled. The existing ceasefire is expected to end on April 21.
Despite the ceasefire, gas prices remain high due to a complex mix of reduced oil supply, ongoing shipping disruptions and seasonal demand. As global oil flows remain restricted and summer travel increases, consumers seeking relief at the pump may have to wait. The U.S.-Iran ceasefire has not yet improved conditions in the Strait of Hormuz, where ship traffic remains well below pre-conflict levels.
Crude oil is the main factor affecting gasoline prices, which are driven by global supply and demand. Gasoline prices also reflect costs from refining, distribution, marketing, retail sales, and government taxes. The federal gas tax is 18.4 cents per gallon, with state taxes ranging from about 9 cents to over 70 cents per gallon, according to the American Petroleum Institute.
Prior to the two-week ceasefire, Trump had been threatening to destroy all of Iran. The ceasefire deal requires Iran to reopen the Strait of Hormuz, the crucial waterway that carries about 20% of the world’s oil and natural gas.
Since the conflict began at the end of February, U.S. gas prices have climbed more than 60 cents per gallon. The national average was $4.118 per gallon on Tuesday, according to AAA.
The ongoing conflict with Iran has pushed oil prices to record highs. If it continues, experts warn that economic strain will grow, further affecting U.S. taxpayers. U.S. military operations, ongoing since late February, are costing an estimated $1 billion per day.
Analysts have noted that if the conflict continues for an extended period, it could drive a significant increase in defense spending and further impact the federal budget.
The Department of War may ask Congress for an additional $200 billion for Iran operations. It has not yet provided exact figures for a supplemental request. Trump recently unveiled a 2027 budget proposing a 44% increase in military spending to bolster the nation’s fighting forces. That would bring the U.S. defense budget to $1.5 trillion, if approved by Congress.
On Feb. 28, after nuclear talks with the Islamic Republic failed to produce a deal, the U.S. and Israel launched strikes on Iran.