Gas prices at a Shell Station located on Foothill Blvd.
Robert Gauthier | Los Angeles Times | Getty Images
Rising oil prices may not just be a headwind to President Donald Trump’s fight to lower inflation. They could also undermine his signature legislative achievement.
Almost all of the economic effect of the individual tax cuts in the “big beautiful bill” — from both smaller withholdings and sweetened tax refunds — could be erased if oil prices remain elevated by more than $20 compared to before the U.S.-Iran war, according to Raymond James.
“With the $25 move last week, if the oil price stays here, it essentially offsets the fiscal benefit from the OBBA,” wrote strategist Tavis McCourt in a note.
McCourt’s analysis relies on applying any increase in oil market prices to the more than $420 billion that consumers spent on gasoline in the fourth quarter of 2025. He told CNBC in an interview he accounted for both potential reduced demand due to higher prices and companies’ needs to pad margins in his calculations.
That leads him to conclude a $20 move in oil prices could mean consumers spending $150 billion more at the pump. The Tax Foundation estimates that the big beautiful bill’s individual tax cuts total $129 billion for 2025, with the overwhelming majority of it set to appear through tax refunds this filing season.
U.S. oil before the war on Feb. 27 closed at $67.02. As of Tuesday morning, after a major whiplash in prices on Monday, oil is still trading more than $20 a barrel higher at $88.20.
@CL.1 since Feb. 27 chart.
Stephanie Roth, chief economist at Wolfe Research, said in a Monday interview her estimations for the hit consumers could take with elevated oil prices are also similar to the elevated spending she projected from the tax law. Though Wolfe in a Tuesday note said oil prices would need to remain above $100 for some time for that to happen.
“In all these scenarios, it has to last longer than it is now,” Roth said. “The impact on gas prices so far has been short-lived, and modest compared to how it may ultimately play out.”
But it will take time for oil prices to come down even if an end to the war in Iran arrives, which Trump said in an interview with a CBS News reporter on Monday is “very complete,” though didn’t give a timeline for the war’s end in a press conference that followed.
McCourt noted it took about six months for oil prices to get back to levels where they were before surges higher after the Gulf War in 1990 and the Russian invasion of Ukraine in 2022.
Consequences of weaker stimulus
Fiscal stimulus from the tax law was expected to boost the economy in 2026, with some economists predicting a reacceleration of U.S. growth partially thanks to it.
Now, an oil price shock is hitting right as consumers are set to get those tax refunds. Citadel Securities last week estimated that only 30% of refunds had been distributed by March 1, with the figure expected to rise to around 75% by May 1.
“The bottom line is that if we were expecting those tax refunds to lift consumer spending, these higher oil prices are just redirecting all that cash toward energy costs,” wrote Gabriel Shahin, CEO of Falcon Wealth Planning, in an email to CNBC. “It’s essentially voiding out the economic boost we were set to see.”
But Dan Niles, portfolio manager at Niles Investment Management, framed the situation as the refunds helping the economy weather higher oil prices.
He already has faith consumers can do that, pointing back to when oil hit similar prices in 2022 and 2023, all while Wall Street broadly predicted a recession on the horizon thanks to rising interest rates.
“You already had that stress tested a bit,” Niles said. “So if that’s the case back then, and coming off of inflation surging in 2021, and you still didn’t get a recession, why would you think inflation down at 3% and oil at $100 would cause a recession now?”
Many on Wall Street have drawn similarities between the surge in prices this time around to four years ago, when Russia invaded Ukraine.
Roth, though, cautioned investors against relying too much on that comparison.
“The economic backdrop is not a mirror image of where we are today,” she said. “Core inflation was running at 5.5% compared to 3% today. Job growth was running at around 500,000, now we’re at 37,000 over the past couple of months. So it’s just an entirely different backdrop.”
.GSPD vs. .SPX year-to-date chart.
McCourt added he thinks if the stimulus from the big beautiful bill isn’t as strong as originally thought, that likely won’t change too many outlooks for the year, particularly in stocks which he thinks never priced in a big surge in consumer spending. He noted that consumer discretionary stocks have underperformed the S&P 500 in 2026.
But he also had faith that the economy, not just the stock market, could weather oil prices and weaker-than-expected stimulus, so long as the labor market remains intact.
“We just have never had a sustained pullback in consumer spending without substantial job losses,” McCourt said. “We’ll have some shifts in spending… But it’s probably not going to impact the overall consumer spending levels.”
