Gasoline prices are displayed at a Shell gas station in Azusa, California.
Robert Gauthier | Los Angeles Times | Getty Images
Rising oil prices could be more than just a headwind to President Donald Trump’s fight to reduce inflation. They could also undermine his outstanding legislative record.
According to Raymond James, almost all of the economic impact of each tax cut in the Big Beautiful Bill – both smaller withholdings and sweetened tax refunds – could be wiped out if oil prices remain more than $20 elevated compared to prices before the U.S.-Iran war.
“If oil prices stay here with the $25 move last week, that essentially offsets the fiscal benefit [One Big Beautiful Bill Act]”Strategist Tavis McCourt wrote in a note.
McCourt’s analysis is based 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. In an interview with CNBC, he said that his calculations took into account both possible lower demand due to higher prices and the need for companies to increase their margins.
From this, he concludes that a $20 increase in oil prices could result in consumers spending $150 billion more at the pump. The Tax Foundation estimates that individual tax cuts from the Big Beautiful Bill will total $129 billion for 2025, with the vast majority of that expected to come through tax refunds this filing season.
U.S. oil closed at $67.02 before the war on February 27. As of Tuesday morning, after a sharp price rally on Monday, oil is still trading more than $20 a barrel higher at $88.20.
Stock chart iconStock chart icon
@CL.1 since February 27th chart.
Stephanie Roth, chief economist at Wolfe Research, said in an interview Monday that her estimates of the impact rising oil prices could have on consumers were also comparable to the increased spending she predicted as a result of the tax law. However, Wolfe said in a note on Tuesday that oil prices would have to remain above $100 for some time to achieve this.
“In all of these scenarios, it has to last longer than it does now,” Roth said. “The impact on gas prices so far has been short-lived and modest compared to the potential impact.”
However, it will take time for oil prices to fall after the war ends. Trump said in an interview with a CBS News reporter on Monday that the war was “very much complete,” but did not provide a timetable for the war’s end in a news conference the same day.
McCourt noted that after the Gulf War in 1990 and the Russian invasion of Ukraine in 2022, it took about six months for oil prices to return to previous levels.
consequences of weaker stimuli
Fiscal stimulus from the tax law was expected to boost the economy in 2026, with some economists predicting a reacceleration in U.S. growth, thanks in part to the law.
Now there is an oil price shock as consumers receive tax refunds. Citadel Securities estimated last week that only 30% of refunds had been paid out as of March 1, with the figure expected to rise to around 75% by May 1.
“The bottom line is that if we expected these tax rebates to boost consumer spending, these higher oil prices would just divert all the money into energy costs,” Gabriel Shahin, CEO of Falcon Wealth Planning, wrote in an email to CNBC. “It essentially wipes out the economic recovery that we should be seeing.”
But Dan Niles, portfolio manager at Niles Investment Management, framed the situation as saying the refunds would help the economy weather higher oil prices.
He pointed out that oil reached similar prices in 2022 and 2023, while Wall Street broadly predicted a recession on the horizon thanks to rising interest rates.
“They’ve already tested that stress a little bit,” Niles said. “So if that was the case then, and you still didn’t see a recession after inflation spiked in 2021, why would you think that 3% inflation and $100 oil would cause a recession now?”
Many on Wall Street have noted similarities between the current price surge and that of four years ago when Russia invaded Ukraine.
However, Roth cautioned investors against relying too heavily on this comparison.
“The economic backdrop is not a reflection of our current situation,” she said. “Core inflation was 5.5% compared to 3% today. Job growth was around 500,000, now we’re at 37,000 in the last few months. So it’s just a completely different environment.”
Stock chart iconStock chart icon
.GSPD vs. .SPX annual chart.
McCourt said he thinks the outlook for the year probably won’t change all that much if the stimulus from tax reform isn’t as strong as initially thought, particularly in stocks, which he said has never priced in a big increase in consumer spending. He noted that consumer discretionary stocks underperformed the S&P 500 in 2026.
But he also said the economy, not just the stock market, can weather oil prices and weaker-than-expected stimulus as long as the labor market remains intact.
“We have simply never seen a sustained decline in consumer spending without significant job losses,” McCourt said. “There will be some shifts in spending… But that probably won’t impact overall consumer spending.”
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.