Rising Oil Prices Threaten to Undermine Trump’s Tax Cut Stimulus
A surge in oil prices is posing a significant challenge to the economic benefits of President Donald Trump’s signature tax law, potentially redirecting consumer cash from tax refunds straight to the pump.
Analysis from Raymond James strategist Tavis McCourt suggests that the more than $20 per barrel increase in oil prices since before the U.S.-Iran conflict could nearly erase the fiscal stimulus from the One Big Beautiful Bill Act. “With the $25 move last week, if the oil price stays here, it essentially offsets the fiscal benefit from the [One Big Beautiful Bill Act],” McCourt wrote in a research note.
His calculation applies the oil price increase to the over $420 billion consumers spent on gasoline in the final quarter of 2025. After accounting for reduced demand and company margin pressures, he estimates a sustained $20 oil price rise could force consumers to spend approximately $150 billion more on gasoline. This figure surpasses the Tax Foundation’s estimate of $129 billion in individual tax cuts for 2025, the vast majority of which were expected to flow to Americans via tax refunds this filing season.
U.S. crude oil closed at $67.02 per barrel on February 27, before the conflict. As of Tuesday, following volatile trading, it remained more than $20 higher at $88.20.
Gas prices are displayed at a Shell station in Azusa, California.
Robert Gauthier | Los Angeles Times | Getty Images
A Short-Lived Impact or a Sustained Shock?
Not all analysts agree the current price move will have a lasting, catastrophic effect. Stephanie Roth, chief economist at Wolfe Research, noted that her initial estimates for consumer pain from higher oil prices align with the tax cut stimulus, but she stressed the price increase would need to persist above $100 for a full offset.
“In all these scenarios, it has to last longer than it is now,” Roth said in an interview. “The impact on gas prices so far has been short-lived, and modest compared to how it may ultimately play out.”
The duration of elevated prices depends heavily on the conflict’s resolution. While President Trump described the war as “very complete” in an interview, he did not provide a definitive timeline for its conclusion. McCourt pointed to historical precedents, noting it took roughly six months for oil prices to return to pre-war levels following the 1990 Gulf War and the 2022 Russian invasion of Ukraine.
Redirecting the Stimulus: Economic Consequences
The tax cuts were poised to provide a mid-year fiscal boost, with refunds distributed primarily between March and May. Citadel Securities estimated that only 30% of refunds had been issued by March 1, with that figure expected to climb to about 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.”
However, portfolio manager Dan Niles of Niles Investment Management framed the tax refunds as a buffer, not a nullifier. He referenced the 2022-2023 period when oil prices were similarly high amid rising interest rates, yet a recession was avoided. “You already had that stress tested a bit,” Niles said. “So if that’s the case back then… why would you think inflation down at 3% and oil at $100 would cause a recession now?”
Roth urged caution against direct comparisons to 2022. “The economic backdrop is not a mirror image of where we are today,” she said, citing a lower core inflation rate (3% vs. 5.5%) and dramatically slower job growth (37,000 per month recently vs. ~500,000 in 2022).
Market Implications and Outlook
McCourt believes the stock market may not see a dramatic shift, as equities likely did not fully price in a massive consumer spending surge from the tax law. He noted that consumer discretionary stocks have already underperformed the S&P 500 in 2026.
.GSPD vs. .SPX year-to-date chart.
His broader economic view hinges on the labor market. “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.”
The interplay between fiscal policy and geopolitical energy shocks now represents a critical test for the U.S. economy’s resilience in 2026. The final impact will depend on whether oil prices recede as conflicts ease or remain structurally higher, turning a temporary tax stimulus into a permanent increase in household energy burdens.
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