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US lawmakers will consider legislation to suspend the federal tax on petrol after Donald Trump backed the move amid soaring fuel costs driven by his Iran war.
Josh Hawley, a Republican senator from Missouri, said on Monday he would introduce a bill to pause the levy, which adds 18.4 cents to the cost of a gallon of petrol.
Trump described a suspension of the tax as “a great idea”.
“We’re going to take off the gas tax for a period of time, and when gas goes down we’ll let it phase back in,” the US president told CBS News earlier on Monday. Any suspension would need to be backed by Congress and require support of some Senate Democrats to become law.
The consideration of a “gas tax holiday” comes as Americans struggle with the higher fuel costs triggered by the conflict in the Middle East.
The Strait of Hormuz, through which a fifth of global oil supply usually flows, has been largely closed for more than two months, pushing crude prices above $100 per barrel.
The average US petrol price has risen by more than half to $4.52 per gallon since the war began in late February. Diesel, a crucial input for American industry, has jumped by a similar margin to $5.64, just shy of its all-time high of $5.82.
Proposals to pause the tax have been raised during previous energy shocks, most recently in 2022 when Russia’s full-scale invasion of Ukraine drove prices at the pump to record levels. However, a federal suspension failed to win support in Congress despite backing from then-president Joe Biden.
While individual states have in the past paused local petrol taxes, a nationwide holiday has never been implemented.
Trump has released record volumes of oil from the US Strategic Petroleum Reserve, eased restrictions on shipping and environmental regulations on fuel in a bid to douse the price rise.
But as the war drags on, his administration has grown increasingly concerned about the fallout from higher fuel prices, which have helped knock the president’s polling numbers to an all-time low.
“All measures that can be taken to lower the price at the pump and lower the prices for Americans, this administration is in support of,” energy secretary Chris Wright told NBC’s Meet the Press on Sunday when asked about the possibility of a gas tax holiday.
Analysts at the Center for a Responsible Federal Budget have estimated that the federal tax on petrol brings in about $30bn annually. A three-month holiday would lead to about $7bn in lost tax revenue.
Much of the revenue from the tax goes into the Highway Trust Fund, which is spent on roads, bridges and public transportation.
Bob McNally, founder of Rapidan Energy Group, said suspending the federal tax on petrol would only be of “modest benefit” to consumers if the Strait of Hormuz stayed closed.
“All this does is break or slow the upwards move in petrol prices — it will only have a marginal impact,” said McNally, a former White House energy adviser.
The proposal comes as analysts warn that prices of petrol and diesel could soar to record levels within weeks. S&P Global said on Monday that markets were bracing for a “crisis”, with global demand for refined products such as petrol and diesel projected to decline twice as much as during the Great Recession.
Oil processed by global refineries is expected to decline by 5.2mn barrels per day in the second quarter and 2.7mn b/d in the third quarter compared to last year.
This would put pressure on prices and cause a sharp pullback in product demand, according to the energy research group.
“Whether you like it or not, demand curtailment may be coming to [a] market near you,” said Karim Fawaz, executive director, fuels and refining, at S&P Global Energy.
