What If the Cost of Gas Went Up to $20 per Gallon?
Written by
Sean Bryant
Edited by
Angela Corry
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An abrupt jump in price per gallon for gasoline would have a significant impact on household budgets, the economy and beyond.
To start, inflation would spike incredibly fast as fuel costs pass through to all goods and services, meaning consumer spending would fall.
In turn, businesses would face “significant bankruptcies and store closings,” as one economist warned during a previous surge. Jobs in travel, retail and hospitality would evaporate as households juggled massive new fuel bills.
Now imagine $20 at the pump.
Impact of Buying Gas on American Budgets
Each penny increase in gas already costs U.S. consumers ~$1 billion annually. A jump to $20 would add over $5,000 in fuel costs per driver, and most families simply couldn’t absorb it.
S. David Freeman, former head of the L.A. Board of Harbor Commissioners, wasn’t shy when asked what $200-a-barrel oil would mean for everyday Americans: “The purchasing power of the American people would be kicked in the teeth so darned hard… they won’t have the ability to buy much of anything.”
How America Would Adapt to $20 Gas
Over time, necessity would require the economy to reorganize around high transportation costs.
Vehicle miles driven would drop and telecommuting would become the norm. Housing patterns would shift towards urban, transit-accessible areas. Freight routes would shorten, favoring local production. And GDP growth would likely fall well below trend until EVs, public transit and renewable infrastructure catch up.
How $20 Gas Would Affect Different Industries
Auto
The auto industry would have to change dramatically.
Internal combustion (gas) vehicle sales would collapse, and EV and hybrid demand would surge. In California, EV sales respond 4-6 times more to gas price hikes than electricity price changes.
Legacy automakers would also face severe financial strain as plants focused on large vehicles would shutter, while battery and EV assembly lines race to keep up. In turn, supply chains for batteries and rare minerals would most certainly bottleneck.
Trucking & Shipping
Freight companies would pass on fuel surcharges or cut routes. Ocean shipping increases would be comparable to a 15% tariff on imports and global supply chains would shrink.
Travel
Jet fuel costs would ground flights and raise fares which would mean routes would be slashed and air travel demand would collapse.
On the ground, public transit ridership from buses to trains, would soar.
Retail & Restaurants
With household budgets gutted, non-essentials would suffer. Consumer spending would tank, and small businesses would eventually close.
Agriculture
Farmers would face skyrocketing diesel and fertilizer prices. Food costs would rise sharply, worsening inflation.
U.S. Government and Policy Responses
Tax holidays, SPR releases or gas rebates would offer only minor relief. Long-term, you could expect big public spending on EV tax credits, electric buses, transit infrastructure and renewable energy. Governments might ease drilling rules but also ramp up conservation campaigns and fuel efficiency mandates.
What Would Happen Globally?
High gas prices in the U.S. would also have a ripple effect globally.
Oil exporters would enjoy windfall profits, while import-dependent countries face inflation, trade deficits and slower growth. Shipping costs would spike, food insecurity would worsen and pressure to decarbonize would intensify worldwide.
Bottom Line
If gas prices were ever to jump to such a high amount, the impact would be detrimental to the U.S. and global economies. As industries are forced to pivot shipping and manufacturing processes, the cost of goods would jump wildly across the board making even the most basic necessities unaffordable to most people.
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