Kiplinger Business Costs Outlook: Energy Will Stay High for a While
More certainty on tariffs, but less on energy costs.
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All eyes are on the Persian Gulf, as shippers wait to see when the Strait of Hormuz will be passable again. The de facto blockade of the strait by Iran has driven the price of West Texas Intermediate crude oil to a level in the $90s per barrel as of this writing, about 50% higher than prewar prices. This has driven costs up for all petroleum-based products and their substitutes: gasoline, diesel, heating oil, aviation fuel, chemicals, plastics, asphalt, coal and electricity. The one exception so far is natural gas, since the U.S. gas market is only partially integrated with the broader global market. Crude oil prices have come down a little off their highs, however, as Iran has begun allowing a trickle of ships heading to China, India and Pakistan through the strait. Also, the Trump administration has made efforts to boost the supply of oil by suspending for 60 days the Jones Act — which restricts foreign tankers from carrying oil between U.S. ports — and is considering lifting sanctions on purchases of Iranian oil.
Many tariffs remain after the Supreme Court decision invalidating the administration’s use of the International Emergency Economic Powers Act to impose tariffs. As a result, the White House has adopted a 10% global tariff under the authority of Section 122 of the 1974 Trade Act. However, this can only be implemented for 150 days and will expire in May unless Congress reauthorizes it.
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The court’s ruling did not affect those tariffs implemented under Section 232 of the Trade Expansion Act of 1962 or Section 301 of the Trade Act of 1974. These sections typically can be used to cover specific goods such as steel, copper and motor vehicles, but first require an investigation into trade practices involving these goods. Those investigations will slow the adoption of replacement tariffs once the blanket Section 122 global tarihttps://www.kiplinger.com/economic-forecasts/interest-ratesff expires.
Labor costs continue to ease, but slowly. Private-industry compensation cost increases ended 2025 at 3.4%, and will likely slow as hiring remains muted. However, the rise in gasoline prices will cause cost-of-living wage adjustments to reverse some of this easing later. Production workers’ wage growth should stay a bit higher, as slowing immigration reduces labor supply for these typically blue-collar jobs. The construction, agriculture, retail, and leisure and hospitality industries will be most affected by possible labor shortages because of their reliance on immigrant workers.
Expect borrowing costs to rise a little because of expectations that the Federal Reserve will not cut interest rates any more amid the pickup in inflation driven by energy prices, and also due to uncertainty about how that burst of inflation will affect the economy.
Rising diesel prices will increase the cost of shipping by truck on the spot market. Rates have risen by 10 cents per mile, on average, to $2.40 for dry van and $2.80 for other types of trucking. Rates are also being supported by an increase in load demand coming from a pickup in the manufacturing sector.
The cost of shipping by truck will follow the seasonal pattern of the past two years. Rates have fluctuated in a narrow band for a while, and won’t pick up appreciably until demand for manufactured goods and home construction improves. However, UPS and FedEx rates have spiked this year, as earlier surcharges appear to be permanent. As a result, shippers are looking to slower, cheaper services like FedEx Ground Economy, UPS Ground Saver and, of course, the U.S. Postal Service.
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