The U.S. Energy Information Administration expects nationwide retail gasoline prices to average near US$4.30 a gallon for April 2026 – the highest monthly average of the year. The political response has been familiar. Georgia has suspended its state gas tax, other states are weighing their own tax holidays, and the White House has issued a temporary waiver of a law known as the Jones Act in hopes of moving more domestic fuel to East Coast ports.

As an energy economist, I am often asked about what contributes to gas prices and what different policies can do to affect them.

The price of a retail gallon of gas is the sum of four things: the cost of crude oil, refining, distribution and marketing, and taxes.

In nationwide figures from January 2026, crude oil accounted for about 51% of the pump price, refining roughly 20%, distribution and marketing about 11% and taxes about 18%. That mix shifts with conditions: When crude oil prices spike, that can drive more than 60% of the price; when the price drops, taxes and logistics are larger shares of the cost.

Crude oil is the biggest ingredient

Because the price of crude oil is the largest element, most of the price at the pump is derived from the global oil market.

Usually, big swings in crude prices come mainly from shifts in global demand and expectations – not from supply disruptions, according to widely cited research in 2009 by the economist Lutz Kilian.

But what is happening in early 2026 with the war in Iran is one of the exceptions: a classic supply shock. Severe disruptions to shipping through the Strait of Hormuz and attacks on Middle East oil infrastructure have taken millions of barrels a day off the global market.

Most drivers generally can’t quickly reduce how much they drive or how much gas they use when prices rise, so gasoline demand doesn’t change much in the short run. That means a jump in crude costs tends to result in people paying more rather than driving less.

Refining, regulations and the California puzzle

Refining turns crude into gasoline at industrial scale. The U.S. doesn’t have a single gasoline market, though. Roughly a quarter of U.S. gasoline is a cleaner-burning blend of petroleum-derived chemicals called “reformulated gasoline,” which is required in urban areas across 17 states and the District of Columbia to reduce smog.

California uses an even stricter formulation that few out-of-state refineries make. California is also geographically isolated: No pipelines bring gasoline in from other U.S. refining regions.

California’s gasoline prices have long run above the national average, explained in part by higher state taxes and stricter environmental rules. But since a refinery fire in Torrance, California, in 2015 reduced production capacity, the state’s prices have been about 20 to 30 cents a gallon higher than what those factors would indicate.

Energy economist and University of California, Berkeley, professor Severin Borenstein has called this the “mystery gasoline surcharge” and attributes it to the fact that there isn’t as much competition between refineries or gas stations in California as in other states. California’s own Division of Petroleum Market Oversight says the surcharge cost the state’s drivers about $59 billion from 2015 to 2024. It’s not exactly clear who is getting that money, but it could be gas stations themselves or refineries, through complex contracts with gas stations.

Getting the gas into your car

The distribution and marketing category covers the costs of everything involved in getting the gasoline from the refinery gate to your tank.

Gasoline moves by pipeline, ship, rail and truck to wholesale terminals, and then by local delivery truck to service stations.

At the retailer’s end, the key factors are station rent and labor, the cost to buy gasoline in bulk to be able to sell it, credit card fees of as much as 6 to 10 cents a gallon at current prices, and franchise fees paid to the national brand, such as Sunoco or ExxonMobil, for permission to put their branding on the gas station.

Most gas station operators net only a few cents per gallon on fuel itself – which is why many gas stations are really convenience stores with pumps out front. Borenstein and some of his collaborators have also documented that retail gas prices rise quickly when wholesale costs climb but fall slowly when wholesale costs drop.

The question of gas tax holidays

The federal government charges a tax on fuel, of 18.4 cents a gallon for gasoline and 24.3 cents a gallon for diesel. States charge their own taxes, ranging from 70.9 cents a gallon for gas in California to 8.95 cents in Alaska.

When gas prices rise, many politicians start talking about temporarily suspending their state’s gas tax. That does reduce prices, but not as much as politicians – or consumers – might hope. Research on past gas tax holidays has found that consumers get about 79% of the reduction in gas taxes. That means oil companies and fuel retailers keep about one-fifth of the tax cut for themselves rather than passing that savings to the public.

Gas tax holidays also reduce funding for what the taxes are designed to pay for, typically roads and bridges. That pushes road and bridge upkeep costs onto future drivers and general taxpayers.

There is an additional problem, too: Taxes on gasoline are supposed to charge drivers for some of the costs their driving imposes on everyone else – carbon emissions, local air pollution, congestion and crashes. But Borenstein has found that U.S. fuel tax levels are already far below the true cost to society. Removing the tax on drivers effectively raises the costs for everyone else.

The Jones Act: A small number that adds up

The 1920 Jones Act is a federal law that requires cargo moving between U.S. ports to travel on vessels built and registered in the U.S., owned by U.S. citizens, and crewed primarily by U.S. citizens and permanent residents. Of the world’s 7,500 oil tankers, only 54 meet this requirement. Only 43 of these can transport refined fuels such as gasoline.

So, despite significant refining capacity on the Gulf Coast, some U.S. gasoline is exported overseas even as the Northeast imports fuel, in part reflecting the relatively high cost of moving fuel between U.S. ports.

Economists Ryan Kellogg and Rich Sweeney estimate that the law raises East Coast gasoline prices by about a penny and a half per gallon on average, costing drivers roughly $770 million a year. In light of the war’s effect on gas prices, the Trump administration has temporarily suspended the Jones Act requirements – an action more commonly taken when hurricanes knock out Gulf Coast refineries and pipeline networks.

What moves the number

The result of all these factors is that the price that drivers see at the pump mostly reflects the global price of crude, plus a stack of domestic costs, only some of which are inefficient.

Tax holidays give a partial, short-lived rebate. Jones Act waivers trim pennies, though permanent repeal may cause more fundamental changes, such as reduced rail and truck transport of all goods, which could lower costs, emissions and infrastructure damage associated with cargo transportation. Harmonizing fuel blends across states and seasons may lower prices somewhat, but likely at the expense of increased emissions.

Ultimately, the best protection against oil price shocks is a more efficient gas-burning vehicle, or one that doesn’t burn gasoline at all. In the meantime, the best I can offer as an economist is clarity about what that $4.30 actually buys.

Robert I. Harris does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Corruption crackdowns are bad for businesses that thrive on their proximity to political power centers. In fact, they can change the physical layout of an entire industry.

That is what my colleagues and I found when we looked at the impact of a major Chinese government campaign against corruption on Beijing’s restaurants.

In 2012, the Chinese Communist Party introduced its eight-point regulation initiative. This put in place new rules to stop public officials enjoying lavish banquets and luxury travel, or having extravagant meetings at the expense of taxpayers and businesses.

The sudden change in rules in China presented an opportunity for us to explore a hidden and under-researched force: how being close to political power shapes the economy.

We looked at the restaurant industry in Beijing before and after the crackdown to evaluate how political power has an influence on where businesses build and whom they serve.

Using data from Dianping, which is China’s version of Yelp, we looked at hundreds of thousands of customer reviews and spending reports from 2010 to 2014. We also recorded the locations of 120 government offices and observed tens of thousands of nearby restaurants.

Our results showed an immediate drop in business for restaurants near government offices after the new rules were implemented. Customer visits fell by 5.5%, and average spending per person dropped by 2.7%.

This equated to about US$400 million in lost sales each year for restaurants in Beijing. Fancy and expensive dining spots were hit hardest.

This sudden drop didn’t happen just because official funding for these meals was cut. Rather, the strict new accountability measures acted as a powerful deterrent, making it far too risky for politicians and businesses to be seen indulging in lavish spending right next to government offices.

One of the most striking findings was the longer-term impact. By 2016, the entire physical layout of the restaurant industry in Beijing had changed.

Before the crackdown, high-end dining spots were built closely around political power centers. Afterward, the market adapted, and these restaurants spread out into regular shopping districts and residential neighborhoods.

This suggests that the geography of political power directly changes the shape of local economies. It brings wealth and resources together in ways that normal market forces cannot explain.

Why it matters

Economists often study why businesses build close to one another. They usually highlight market forces like population size, customer demand or public transit hubs.

Our research suggests that political power also shapes where businesses decide to plant their flag. Government hubs hold local economies in place: They create networks of private businesses that quietly depend on being near politicians.

It also highlights the hidden costs of political corruption crackdowns – that the economic fallout extends far beyond the intended targets. In the case of our study, the target was corrupt politicians and lavish spending, but the fallout extended to the surrounding restaurant industry.

And the implications of our research extend beyond China. The Trump administration in the U.S. canceled many federal office leases in 2025. Ending federal contracts, moving workers or shutting down agencies could, our study indicates, pull hundreds of millions of dollars out of nearby areas.

The lesson is clear for policymakers, city planners and real estate investors: Cutting budgets or closing government offices might achieve a specific goal; however, these actions cause a ripple effect that can hurt nearby private contractors, retail stores and service providers.

What we don’t know

Our study clearly shows that government reforms and limits on spending can impact local industries. What our research doesn’t show is: Is it worth it?

High-end restaurants in Beijing lost millions of dollars, but the anti-corruption campaign may have reduced broader waste. It might have redirected public money toward more useful, long-term social projects.

Calculating the total costs and benefits of these sudden political shifts remains a complex challenge.

In future research, we hope to explore that question and also how these dynamics play out across different political systems and societies.

The Research Brief is a short take about interesting academic work.

Rui Du does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.