Eleven weeks into the Iran war and a global energy shock, California drivers are paying the highest gas prices in the nation, an average of $6.15 a gallon this week.
The pain at the pump is colliding with California’s ambitious push away from fossil fuels, as refinery closures, supply disruptions and a deepening debate over reliance on imported oil and gas raise new questions about whether the state can keep gasoline affordable during the transition.
Here are five things to know about how Sacramento is responding to the crisis and what it could mean for prices in the months ahead.
California can see six weeks out — after that, prices could rise.
California can confidently forecast gasoline and crude oil shipments coming in through about mid-June, and supply looks stable through that window, Siva Gunda, vice chair of the California Energy Commission, told an Assembly oversight hearing last week.
After that, oil and gas will cost significantly more to secure, he said.
California can outbid the rest of the world for gasoline and crude oil, pulling shipments away from Asia and other markets. But that bidding war comes at a cost, and consumers will pay it at the pump, Gunda told the committee.
To hedge against that uncertainty, Gunda said California is negotiating long-term supply deals with Asian refiners that could lock in another three to six months of certainty.
“Liquidity, in the short-term, is okay,” Gunda said. “As we move forward, it's really about making sure more ships are coming, more marine vessels are coming.”
As refineries close, imports are filling the gap.
The Iran war has exposed California’s growing reliance on imports of both crude oil and gasoline. The state needs to import more supply as in-state refineries shut down.
Neale Mahoney, a Stanford economist, told the committee that imports can be a benefit. They add competition and lower prices, since newer overseas refineries often produce gasoline more cheaply than California's.
Other experts agree. UC Berkeley energy economist Severin Borenstein, also at the hearing, said California's resilience now depends on building out port, pipeline and storage capacity to handle imports, not on bringing new refineries online.
As the war has dragged on, California refiners have shifted crude sourcing away from the Persian Gulf toward Latin America, Alaska and Canada, Gunda said at the hearing last week. The state met about 20% of its refined-product demand through imports in the year before the war began.
“Fundamentally, we have to recognize we are going to have fewer refineries, and the solution is imports,” Borenstein said.
The oil industry says imports are the problem, not the answer.
But the oil industry is pushing back, saying that relying on increased imports is the wrong strategy. California's fuel system has been "weakened by design" by state policies pushing refiners out of the state, said Jodie Muller, president and CEO of the Western States Petroleum Association — a characterization energy economists dispute.
Because California requires that cars burn a specialized fuel blend, shipments can be tougher to source and take longer to arrive, exposing consumers to delays and volatility every time something goes wrong globally.
“Continuing to move to more and more imports will put this state at more and more risk,” Muller said last week. “If you think we are in a precarious position right now, we will continue to see more and more volatility.”
And the oil industry argues that the playing field is tilted. California refiners face some of the strictest rules in the world, the industry argues, while imported gasoline is produced under far weaker standards before it’s shipped halfway around the world. California requires importers to certify their fuels meet its standards, but the industry argues that foreign producers operate under less stringent environmental rules.
$6.50 or $7-plus? Experts can't agree.
In the end, what you feel most acutely is the price you pay at the pump. And even the experts aren't sure where things will land.
Asked what consumers should expect if the conflict drags on, Gunda said California prices will likely settle "under seven, more like $6.50." He explained that demand starts dropping once gas crosses about $5.50 a gallon, and California is already seeing drivers shift from higher-priced stations to cheaper ones.
Borenstein is less optimistic. If the Strait of Hormuz, the narrow waterway that carried more than 20 million barrels of oil a day before the start of the war, stays closed another 60 days, the price of crude could climb by another $40 to $80 a barrel, he said. Each $40 increase translates into about $1 per gallon at the pump. He called that scenario plausible, and warned there's almost nothing California policy can do about it.
“Unfortunately, I think that would be a crisis,” Borenstein said. “I know we all hope that doesn't happen and that the flow of oil resumes, but the reality is we are on borrowed time as we run down inventories.”
Will high gas prices boost EV sales?
California has spent years trying to push drivers out of gas cars. Now sky-high gas prices may be sparking interest in some consumers.
EV sales in California slumped last year after the Trump administration revoked a key federal tax incentive, undercutting California’s plan to steadily replace gas-powered cars with electric ones to meet its climate goals.
Gov. Gavin Newsom is now pushing to revive some of those sales through a new state incentive under negotiation in the budget. It’s too early to know whether pain at the pump is translating into a broad rebound in EV demand. But some consumers are already making the switch.
When gas prices recently climbed past $6 a gallon in Redding, Victor Ireland said his daughter decided there was “no way” she wanted a gas-powered car after watching the family spend more than $140 on a single Sacramento round trip in their minivan.
The search wasn’t easy. EV inventories have dropped across the country since expiring federal tax credits briefly boosted demand. The family searched dealerships across the West, from Washington to Kansas, after his daughter settled on a specific model: the Fiat 500e Giorgio Armani Collector's Edition. They found a dealer in Utah that could ship the vehicle to California.
Ireland said the soaring cost of gasoline only reinforced his family’s decision. “You just charge it and go,” he said.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.
