Even if the disruption to oil and gas from the Iran war subsides, the Trump administration’s energy policy will likely lead to a long-term increase in energy prices.
In his election campaign, US President Donald Trump promised to halve energy prices within 12 months in office. Not only was this unrealistic, but all signs now point in the opposite direction – including trends that predate the US-Israeli war with Iran.
The war and the resulting disruption to oil and natural gas exports from the Middle East has shocked global energy markets. Global oil prices soared to almost $120 a barrel on Monday, their highest level since 2022, as a result of the effective halting of shipments through the Strait of Hormuz, through which about 20 per cent of global oil and natural gas passes.
Prices then dropped slightly on Tuesday as Trump sought to reassure markets that the war would be over soon and G7 ministers met to discuss the release of strategic oil reserves. Nevertheless, American consumers are already likely to feel the war’s impact at the gasoline pump.
Liquefied natural gas (LNG) has also been dramatically affected by the war. Qatar, which accounts for a fifth of global LNG supply, has halted LNG production amid Iranian drone attacks. This disruption has led to European and Asian natural gas prices doubling. The change in US natural gas prices has been more muted as they reflect domestic supply and demand rather than global LNG markets due to export constraints.
However, the long-term trend suggests that energy prices in the US will continue to rise. This was the case even before the current war. Last year, US retail electricity prices rose by almost 7 per cent compared to 2024, double the rate of inflation. While pre-war petrol prices had fallen by 5 per cent since Trump’s inauguration, the price of heating oil and natural gas had also increased significantly.
Consumers are likely to face even higher electricity and gas prices in coming years, in addition to the mounting costs from climate inaction. In simple terms, this is because demand is skyrocketing while supply is tightening. Meanwhile, infrastructure is becoming more expensive and vulnerable to extreme weather.
Rising demand
Demand is being driven by new data centres, increasing LNG exports and deregulation.
New data centres require massive amounts of new power generation, with their demand projected to more than double by 2030 and quintuple by 2035. This surge has led utility companies to run older, less efficient and more polluting power plants. Analysis suggests that data centre growth could drive up electricity prices as much as 25 per cent for some US markets by 2030.
The Trump administration recently announced its Ratepayer Protection Pledge, framed as a ‘historic commitment to keep electricity costs down’ by getting tech companies to pay for the energy to build and operate data centres. But the pledge is more of a political signal than a policy solution. It is voluntary, non-binding and relies on self-negotiated agreements between tech companies and utility companies, with no federal oversight of whether those agreements actually shield consumers from rising costs.
Fundamentally, even if companies pay for new power generation infrastructure, they still compete for fuel and equipment, raising demand and prices for others.
Under prevailing utility regulation and explicit exemptions for data centres, the burden of transmission upgrades and elevated demand will still likely fall on consumers. The counterargument that data centres could actually reduce electricity bills by spreading costs across a larger consumer base and providing flexibility would require demand management policy that is currently absent. Unless the buildout of data centres is carefully planned with low-cost clean energy, it will likely lead to a rise in both costs and emissions.
US natural gas demand is also rising due to increasing LNG exports, which are forecast to be up 50 per cent by 2027 compared to 2024. This tightens the domestic market, as LNG exports compete with domestic natural gas. In 2025, exports were the fastest growing use of natural gas, comprising 14.1 per cent, more than residential or commercial sectors. The war in Iran is likely to push exports to their maximum; an extended conflict could incentivize further export infrastructure investment.
Moreover, broad deregulation will not only accelerate costly climate impacts, but also increase consumer energy costs by removing efficiency standards. This effectively raises demand, as more energy is needed for the same output. In the power sector, the subsidized use of coal power plants past their retirement date will cost $3-6 billion per year.
Tightening supply
Meanwhile, supply is tightening. While embracing and expanding fossil fuel production, the Trump administration has moved to cancel clean energy projects, including wind projects already under construction, and phased out tax incentives for clean energy under the ‘The One Big Beautiful Bill Act’ (OBBBA).
Yet renewables are the cheapest and quickest deployed additions of energy supply. Studies suggest that the OBBBA could lead to households paying an additional $165 annually by 2030 and $280 by 2035. Despite a clear partisan divide, over two-thirds of Americans say they support the expansion of solar and wind power.
Antagonistic policy surrounding clean energy will likely harm future investments. In 2025 alone, $30 billion of clean technology investments left the US market, with a cumulative $500 billion forecasted by 2035. While renewables did still rise in 2025, this reflects projects approved years earlier – with some developers likely rushing to capture incentives before expiring. Renewable energy capacity is still forecast to grow, but at a slower rate.
President Trump’s pledge to ‘drill, baby, drill’ has not driven the price of gas down. The cheapest US natural gas basins are pipeline-constrained, leading to any new incremental supply coming from deeper and more expensive basins, such as Haynesville, with nearly double breakeven costs compared to other basins. This will reflect higher gas prices, which are projected to already be 60 per cent higher this year than in 2024.