Iran "Prepared for All Options"... Trump Unveils Fuel Tax Card as Oil Prices Soar

Rising International Oil Prices Amid Fragile Ceasefire
Increased Inflationary Pressure Ahead of November Midterm Elections
Push for Temporary Suspension of Gasoline Tax

U.S. President Donald Trump likened the ceasefire to "life support" and hinted at a possible resumption of "Project Freedom," prompting Iran to respond by stating it was "prepared for all options." As tensions in the Middle East once again escalated and international oil prices surpassed $100 per barrel, President Trump unveiled a proposal to temporarily suspend the federal gasoline tax to ease the burden of soaring gasoline prices.

On May 11 (local time), Iran immediately responded to President Trump's hardline remarks. Mohammad Bagher Ghalibaf, who led Iran's delegation in the armistice negotiations and currently serves as the Speaker of the Iranian Parliament, declared on the social networking service X (formerly Twitter) that "our military is fully prepared to respond firmly to any aggression," adding, "We are ready for all options, and they will be shocked by our response."

He also criticized the United States, stating, "Wrong strategies and decisions always lead to wrong outcomes."

Speaker Ghalibaf, in a subsequent post, stressed, "There is no alternative but to accept the rights of Iran as specified in the new 14-clause proposal. Any other approach will end without a conclusion and will only lead to repeated failures."

The new proposal reportedly includes demands such as war reparations from the United States, recognition of Iran's sovereignty over the Strait of Hormuz, and lifting of U.S. sanctions. The New York Times (NYT), quoting Iranian experts, reported that this approach reflects the confidence of a leadership that has survived attacks from the United States and Israel.

On the other hand, President Trump, at the White House, described the current U.S.-Iran ceasefire situation as "incredibly weak and at its weakest state," adding, "It is on massive life support, with the doctor coming in and saying there is about a 1% chance." Regarding Iran’s new proposal, he expressed strong dissatisfaction, calling it an "unacceptable and stupid proposition."

Furthermore, in a Fox News interview that same morning, President Trump mentioned the possibility of resuming the halted military operation against Iran, known as Project Freedom. President Trump had launched Project Freedom on May 4 to rescue ships trapped in the Strait of Hormuz, but suspended the operation the following day, citing progress in armistice talks with Iran.

Concerns over a potential collapse of the ceasefire immediately spurred a surge in international oil prices. On this day at the New York Mercantile Exchange, June West Texas Intermediate (WTI) crude futures rose 2.8% to close at $98.97 per barrel. On the ICE Futures Exchange, July Brent crude settled at $104.21 per barrel, up 2.9% from the previous session.

As hopes for a U.S.-Iran armistice faded rapidly, concerns mounted that the energy supply crisis could last longer than expected. In a recent report, Morgan Stanley described the international crude oil market as currently being in "a race against time." The report analyzed that if the blockade of the Strait of Hormuz continues through late June or July, Brent spot prices will experience a sharp correction.

The burden of rising oil prices is already becoming a reality for consumers. According to the American Automobile Association (AAA), as of May 11, the average U.S. gasoline price stood at $4.520 per gallon—up 51.6% from the average of $2.980 per gallon on February 28, the day the Iran war broke out, and 44.1% higher than last year's average of $3.135.

Data from the Department of Energy shows that U.S. gasoline inventories are nearing their lowest seasonal levels in a decade. Bloomberg reported that in the Midwest, where gas station prices have risen the fastest, seasonal gasoline inventories have dropped to the second-lowest level on record.

In response, President Trump announced plans to temporarily suspend the federal gasoline tax (18.4 cents per gallon). He emphasized the need to reduce the burden on consumers, stating, "It's not a big amount, but it's still money." Currently, a federal tax of 18.4 cents is imposed per gallon of gasoline. Any suspension of the gasoline tax would require Congressional approval. Senator Josh Hawley (Missouri, Republican) immediately announced he would introduce related legislation.

However, there is considerable skepticism over the effectiveness of this measure. The Bipartisan Policy Center estimated that the actual price reduction from suspending the federal gasoline tax would be limited to 10–16 cents per gallon. This is modest compared to the $1.54 per gallon increase in gasoline prices following the war. Patrick De Haan, head of petroleum analysis at GasBuddy, remarked, "It's like putting lipstick on a pig," noting that the fundamental problem remains unaddressed.

The market is also paying close attention to the possibility that energy shocks from the Middle East could again spur inflation in the U.S. The Consumer Price Index (CPI) for April, due to be released this week, is expected to rise more than anticipated due to increases in gasoline and airline fares. This could act as a factor delaying expectations for a Federal Reserve rate cut.

On the same day, Matt Hornbach, Morgan Stanley's Global Head of Macro Strategy, said in an interview with Bloomberg, "Tuesday's CPI will likely be a bit 'spicier,'" adding, "The key is how this week's inflation data will feed into the outlook for Personal Consumption Expenditures (PCE) inflation."