In Iran right now, a driver can fill up on gasoline for a few cents a gallon. In the United States, a full tank in an average car runs $50 to $60 or more right now. Those two facts sound like they belong in different universes. They're actually connected by the same conflict.
Iran still sells gasoline far below cost
Iran runs gasoline on a three-tier pricing system tied to how much a driver buys each month. The first 60 liters cost about 15,000 rials each. The next 50 liters cost 30,000 rials. Anything above 110 liters a month now costs 100,000 rials, a price that just doubled early Tuesday, September 8, 2026, Iran time, according to the Associated Press. Converted at Iran's collapsing free-market exchange rate, which just broke past 2.2 million rials to the dollar, that works out to roughly 2.5 to 2.6 cents a gallon at the lowest tier, about 5 cents a gallon at the second tier, and around 17 cents a gallon even at the newly doubled top tier. Almost nothing, by American standards, at every level of the system.
This isn't a natural market price. The government sets it by decree and pays the gap between what it costs to actually produce or import the fuel and what drivers pay at the pump, a subsidy officials describe as increasingly hard to finance. Iran has ranked among the largest energy subsidizers in the world for decades, spending an estimated tens of billions of dollars a year to keep gas this cheap, a policy that traces back to the 1979 revolution and the idea that ordinary Iranians are entitled to a direct share of the country's oil wealth.
Why they don't just stop
Iran has raised prices sharply before, and it did not go well. In November 2019, the government raised gasoline prices 50% overnight and added rationing with almost no warning. Protests broke out in more than 100 cities within days. What happened next depends on who's counting: Iran's own government admits 230 people were killed, Amnesty International puts the number at 304, a UN rights panel said reports suggested up to 400 including at least 12 children, and the U.S. government claimed more than 1,000 died. Iran calls the higher numbers lies. Nobody agrees on the exact figure, but everyone agrees it was a mass, violent crackdown, and it happened because of a gas price hike.
The current increase is narrower by design. Officials limited it to consumption above the 110-liter monthly quota, leaving the price most ordinary drivers actually pay untouched, a much smaller change than 2019's overnight, across-the-board hike.
Where the money actually leaks
Iran's domestic refineries can't keep up with demand even at these artificially low prices, which forces the country to import fuel it can barely afford. And a real share of the subsidized fuel that does get produced never reaches an ordinary Iranian driver at all. Alireza Rashidian, head of Iran's Central Headquarters for Combating Goods and Currency Smuggling, put the number at an average of 20 million liters a day leaving the country in 2025, costing the state roughly $4 billion a year, and said most of that volume is diesel and gasoil rather than motor gasoline specifically. A separate estimate attributed to an Iranian official identified as Rahimi, reported by Shana, put annual fuel-smuggling losses closer to $5.2 billion.
A separate on-the-ground RFE/RL report put the Pakistan border alone at roughly 6 million liters a day. At the subsidized tier prices themselves, that's fuel leaving Iran for well under a nickel a liter, in some cases under a penny. Official Pakistani pump prices rose from about 250 rupees a liter, roughly 90 cents, to more than 400 rupees after the war started, and Pakistani industry reporting has put smuggled Iranian diesel at somewhere around 220 to 240 rupees a liter on the other side of the border, cheaper than the legal price there, but nowhere near as cheap as it left Iran. Whatever the exact daily total, the margin on every smuggled liter is real and large.
Officials have acknowledged the problem reaches beyond ordinary smugglers. An Energy Commission member publicly stated that people involved range "from ordinary people to some who hold official positions." According to Iranian judicial officials cited by the opposition-aligned outlet NCRI, a single bust in Hormozgan province uncovered 21 million liters stashed in hidden storage tanks, connected by more than 600 kilometers of underground pipeline. That was a one-time seizure, not a daily flow rate, but it revealed industrial-scale infrastructure. This isn't just a handful of desperate locals hauling plastic jugs across the desert.
That's a separate problem from a second, much larger kind of leak: international crude trafficking. Retail gasoline walking across a land border in jerry cans is not the same thing as tanker-scale sanctions evasion, but both drain the same government's resources, and the second one has documented military ties. U.S. Treasury sanctions from April 2026 targeted what officials called the Shamkhani petroleum empire, a multi-billion-dollar oil trafficking network tied to funneling smuggled Iranian oil to Venezuela in exchange for gold, which Treasury says flowed back to fund the Revolutionary Guard's Quds Force and its support for Hezbollah. A separate July 2025 action sanctioned a network laundering Iranian oil disguised as Iraqi oil, also tied to the Quds Force. And a February 2024 Justice Department case seized $108 million and more than 500,000 barrels of fuel from a network that included a senior IRGC-Quds Force official among its defendants. Three separate federal actions, two different agencies, over roughly two years, all targeting large-scale crude trafficking rather than pump-level fuel smuggling. The two leaks aren't the same thing and shouldn't be described as one pipeline: one is ordinary people and local operators moving subsidized diesel and gasoline across land borders for profit, the other is a much larger, internationally sanctioned crude and condensate trafficking network with documented ties to the Quds Force. Both drain resources from the same government at the same time it's spending tens of billions of dollars a year keeping pump prices artificially low for its own citizens.
Now flip to the U.S. side of the same conflict
The same Iran conflict driving that gas policy crisis is also the reason American drivers are paying more. In peacetime, roughly 20% of the world's oil moves through the Strait of Hormuz. That's the number most people have heard. It's also out of date. Since U.S. and Israeli strikes on Iran in late February 2026, the strait hasn't functioned normally at all. The IRGC announced a closure days later, and vessel traffic collapsed from roughly 100 ships a day to about five, a drop of nearly 95%.
A brief interim deal in June pushed it back up to 20 ships a day before the U.S. resumed its blockade in July, and traffic has sat at around five ships a day since. As of late August, according to Al Jazeera's reporting citing Kpler tanker-tracking data, crude exports from the whole Gulf region were down nearly 47% from pre-war levels, and direct crude movements through the strait itself had fallen to an average of 2.2 million barrels a day. That's not a risk premium priced into a hypothetical; it's an actual, ongoing supply hole, and it's a major reason crude jumped to around $90 a barrel, alongside strategic reserve releases and softer demand that have kept the price from climbing even further. That pushed the national gas price average to $4.15 a gallon as of September 8, 2026, per AAA.
American exporters have moved fast to grab the opening, even as domestic production dipped slightly. U.S. crude oil output actually fell a bit in May 2026, averaging 13.71 million barrels a day, but crude exports hit a record 5.73 million barrels a day that same month, the second straight month of record exports, according to EIA data reported by Reuters. Saudi Arabia and the UAE scrambled too, rerouting exports around the strait entirely through pipelines and alternate ports, more than doubling their workaround volumes in a matter of months. None of it has closed the gap. Strait traffic itself is still down on the order of 90 to 95% from before the war, and even after all that rerouting, strategic reserve releases, and demand pulling back under high prices, global oil supply remains meaningfully short of where it was.