California's Summer Gas Price Crisis Looms as Iran Conflict Shakes Global Energy Markets

Eleven Weeks into the Iran War and a Global Energy Shock

California drivers are currently paying the highest gas prices in the nation, with an average of $6.15 per gallon this week. This situation is occurring against the backdrop of an ongoing global energy crisis and the war in Iran. The rising costs at the pump are now clashing with California's ambitious efforts to move away from fossil fuels. Refinery closures, supply disruptions, and a growing debate over reliance on imported oil and gas are raising new concerns about whether the state can maintain affordable gasoline during this transition.

Here are five key points about how Sacramento is responding to this crisis and what it could mean for gas prices in the coming months.

Prices Could Spike by July

According to Siva Gunda, vice chair of the California Energy Commission, the state can confidently forecast gasoline and crude oil shipments through mid-June. Supply appears stable during this period, but after that, securing oil and gas will become significantly more expensive.

California has the financial capacity to outbid other regions for gasoline and crude oil, pulling shipments away from Asia and other markets. However, this bidding war comes with a cost, and consumers end up paying the price at the pump. To mitigate this uncertainty, Gunda mentioned that California is negotiating long-term supply deals with Asian refiners, which could provide another three to six months of stability.

"Liquidity, in the short-term, is okay," Gunda said. "As we move forward, it's really about making sure more ships are coming, more marine vessels are coming."

As Refineries Close, Imports Fill the Gap

The conflict in Iran has highlighted California’s increasing dependence on imports of both crude oil and gasoline. As local refineries continue to shut down, the state must rely more on imported supplies.

Neale Mahoney, a Stanford economist, explained that imports can be beneficial as they add competition and potentially lower prices. Newer overseas refineries often produce gasoline more cheaply than those in California. Other experts agree, emphasizing that California's resilience now depends on expanding port, pipeline, and storage infrastructure to handle imports rather than bringing new refineries online.

Gunda noted that California refiners have shifted their crude sourcing away from the Persian Gulf toward Latin America, Alaska, and Canada. Before the war began, the state met about 20% of its refined-product demand through imports.

"Fundamentally, we have to recognize we are going to have fewer refineries, and the solution is imports," Borenstein said.

Industry Says Imports Are the Problem, Not the Answer

However, the oil industry is pushing back, arguing that relying on increased imports is not the right strategy. Jodie Muller, president and CEO of the Western States Petroleum Association, claimed that California's fuel system has been "weakened by design" due to state policies that have pushed refiners out of the state.

Because California requires a specialized fuel blend for cars, shipments can be harder to source and take longer to arrive, exposing consumers to delays and volatility whenever something goes wrong globally.

"Continuing to move to more and more imports will put this state at more and more risk," Muller said. "If you think we are in a precarious position right now, we will continue to see more and more volatility."

The industry also argues that the playing field is tilted. California refiners face some of the strictest rules in the world, while imported gasoline is produced under less stringent environmental standards. Although California requires importers to certify that their fuels meet its standards, the industry claims foreign producers operate under weaker regulations.

$6.50 or $7-plus? Experts Can’t Agree

In the end, the most immediate impact is what consumers feel at the pump. However, even experts are divided on what to expect if the conflict continues.

Gunda suggested that California prices will likely settle "under seven, more like $6.50." He explained that demand starts to drop once gas crosses about $5.50 a gallon, and California is already seeing drivers shift to cheaper stations.

Severin Borenstein, an energy economist, is less optimistic. If the Strait of Hormuz remains closed for another 60 days, the price of crude could climb by another $40 to $80 a barrel, he warned. Each $40 increase translates to about $1 per gallon at the pump. He called this scenario plausible and warned there is little California policy can do about it.

"Unfortunately, I think that would be a crisis," Borenstein said. "I know we all hope that doesn't happen and that the flow of oil resumes, but the reality is we are on borrowed time as we run down inventories."

Will High Gas Prices Boost EV Sales?

California has spent years trying to encourage drivers to switch from gas-powered cars to electric vehicles (EVs). Now, sky-high gas prices may be sparking interest in some consumers.

EV sales in California dropped last year after the Trump administration revoked a key federal tax incentive, which undermined California's plan to replace gas-powered cars with electric ones to meet its climate goals.

Gov. Gavin Newsom is now working to revive EV sales through a new state incentive currently being negotiated in the budget. It's too early to tell if the pain at the pump is leading to a broader rebound in EV demand. However, some consumers are already making the switch.

When gas prices recently climbed past $6 a gallon in Redding, Victor Ireland said his daughter decided there was "no way" she wanted a gas-powered car after watching the family spend more than $140 on a single round trip in their minivan.

The search wasn't easy. EV inventories have dropped across the country since expiring federal tax credits briefly boosted demand. The family searched dealerships across the West, from Washington to Kansas, after his daughter settled on a specific model: the Fiat 500e Giorgio Armani Collector's Edition. They found a dealer in Utah that could ship the vehicle to California.

Ireland said the soaring cost of gasoline only reinforced his family's decision. "You just charge it and go," he said.