Forget Rising Gas Prices: Something Far More Nefarious Can Devastate Your Wallet and the Stock Market

Until recently, Wall Street's major stock indexes seemed untouchable. Within the last five months, we've witnessed the benchmark S&P 500 (SNPINDEX: ^GSPC) reach 7,000, the tech-stock-dependent Nasdaq Composite (NASDAQINDEX: ^IXIC) crest 24,000, and the ageless Dow Jones Industrial Average (DJINDICES: ^DJI) touch 50,000.

But the Iran war has changed things. It's introduced geopolitical uncertainty abroad and has directly impacted the wallets of most Americans. While the most immediate impact of this conflict is being felt by consumers at the gas pump, there's a much bigger issue at hand that has the potential to devastate your wallet and/or investment portfolio.

Image source: Getty Images.

Prices at the pump are soaring

On Feb. 28, Trump-led American forces and Israel began military operations against Iran. Shortly after these attacks began, Iran announced that it would virtually close the Strait of Hormuz to oil exports.

According to the Energy Information Administration, 20 million barrels of liquid petroleum travel through the Strait of Hormuz daily, accounting for 20% of the world's petroleum needs. This virtual shutdown represents the largest energy supply chain disruption in history.

The response in the spot price for West Texas Intermediate (WTI) crude oil has been swift. The April WTI futures contract has surged from a close of roughly $67 per barrel on Feb. 27 to $96 per barrel, as of this writing in the late evening of March 16. Mind you, this is quite the pullback from a peak intra-day high of $119.44 per barrel set one week prior.

Gas prices in the US have moved up to $3.72/gallon, their highest level since October 2023. The 27% spike over the last month ($2.93/gallon to $3.72/gallon) is the biggest we've seen in the past 30 years. pic.twitter.com/C3HrTiRnH5

-- Charlie Bilello (@charliebilello) March 16, 2026

The price consumers pay at the pump for gasoline and diesel tends to rise like a rocket during oil price shock events and often falls like a feather (i.e., declines slowly) in the months that follow.

One month ago, the average nationwide price for a gallon of regular gas was about $2.93, according to AAA. As of March 16, it had risen 27% to about $3.72 per gallon. The ascent has been even more parabolic for diesel, with the average per-gallon price soaring 37% to nearly $4.99 over the last month.

With no end in sight to the Iran war or ongoing energy supply chain disruption, the expectation is that prices at the pump will continue to climb.

Don't miss the forest for the trees

For some U.S. households, soaring gas and diesel prices are no small matter. But when stepping back and looking at average household expenditures across the U.S., gas isn't a particularly big expense. According to research from The Motley Fool, Americans spend 3.2% of their total budget on gas every year. Though that's not chump change, higher gas prices likely aren't a budget-buster, either.

While the Iran war's most immediate effect has been felt at the pump, there's a more important issue at hand that can impact your wallet and/or investment portfolio to a far greater degree than higher gas prices can. I'm talking about interest rates.

Fed Chair Jerome Powell delivering remarks. Image source: Official Federal Reserve Photo.

America's foremost financial institution, the Federal Reserve, is tasked with overseeing our nation's monetary policy. The Federal Open Market Committee (FOMC) -- comprised of 12 voting members, including Fed Chair Jerome Powell -- sets our nation's monetary policy by adjusting the federal funds target rate, which is the overnight lending rate between financial institutions. Changing the federal funds target rate alters interest rates (i.e., the borrowing rate consumers and businesses pay for loans and lines of credit).

Since September 2024, the central bank has undertaken a rate-easing cycle. The FOMC has voted to lower the federal funds target rate on six occasions, reducing it from 5.25% to 5.50% to the current range of 3.50% to 3.75%.

When interest rates are declining, servicing revolving debt (e.g., credit cards) becomes less costly. It can also lead to lower mortgage rates, making homebuying more affordable.

Likewise, falling interest rates encourage businesses to borrow capital. The expectation is that companies will use this capital to increase hiring, boost spending on innovation, and acquire other businesses. In other words, it's akin to pressing the accelerator to stimulate economic growth.

However, one of the biggest factors that determines whether the FOMC raises, lowers, or stands pat on interest rates is the prevailing inflation rate. In February, Core Personal Consumption Expenditures (PCE) rose 3.1%, which is a 22-month high. Core PCE is arguably the leading inflationary measure used by the FOMC in its decision-making.

The Fed's preferred measure of inflation (Core PCE) moved up to 3.1% in January, the highest level in 22 months. That was the 59th consecutive reading above the Fed's 2% target level. There will be no Fed rate cut next week and one could make a strong case for a rate hike. pic.twitter.com/s3GcBZvceD

-- Charlie Bilello (@charliebilello) March 13, 2026

But Core PCE doesn't account for what should be a notable increase in the prevailing rate of inflation caused by soaring energy prices. Though this effect may take a few months to become fully visible, an expected jump in the inflation rate may cause the FOMC to halt its rate-easing cycle, or perhaps even consider reversing course and raising interest rates.

Think about this for a moment: Credit card spending accounts for 30% to 40% of annual consumer purchases. If interest rates rise, it becomes costlier to service revolving debt.

What's more, the stock market entered 2026 at its second-priciest valuation in history, dating back 155 years. History shows that extended valuation premiums of this magnitude aren't sustainable. One of the variables that's been supporting this historically pricey stock market is the prospect of ongoing rate cuts. If the Fed halts or reverses these cuts, one of the pillars responsible for supporting the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite will be gone.

Yes, soaring gas prices are a tangible problem for some U.S. households. But when looking beyond the trees to the forest, you'll see that interest rate implications have far more bearing on the wallets and investment portfolios of America as a whole. If this historic energy supply chain disruption persists, it could prove devastating for U.S. households and the stock market.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.