The closure of the Strait of Hormuz has restricted the flow of energy to global markets, severely impacting oil prices. As a direct result of rising oil prices, gas prices have also risen worldwide, including in the United States.
Although the average prices of gas and diesel have risen in the U.S. to $4.51 per gallon of gas and $5.63 per gallon of diesel as of May 18, the rise in energy prices has been substantially more noticeable in California. On the same day, California reported average gas prices of $6.15 per gallon for regular and $7.41 per gallon for diesel.
Unfortunately, the impact of the rise in fuel costs in California goes beyond its borders, since Nevada and Arizona import sizable portions of their petroleum products from Southern California refineries, and, due to the amount of agricultural products produced in and exported from the state.
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The stark difference in cost between the national average of gas and diesel, which states such as California skew, and California’s ballooning prices, is a result of a combination of overregulation, which discourages the investment and maintenance of a robust energy sector in the state, unique blend requirements for oil refining, and an overreliance on foreign seaborne imports despite having significant known oil reserves. An overreliance and rising cost that is spilling over into other industries, such as agriculture and transportation.
California’s oil imports and high taxes
California imported the majority of its oil from Alaska (16%) and foreign sources (61.1%) in 2025, and has done so for many years. This means that, although having an abundance of known oil reserves, 1.72 billion barrels as of 2022, according to the Energy Information Administration, with some estimates being much higher, California only produced 22.9% of the oil it needs in-state in 2025.
Furthermore, of the foreign oil that California imports, 28% of it came via the Strait of Hormuz in 2025, Iraq (17.5%), Saudi Arabia (7.85%), and the United Arab Emirates (3.35%), which is now placing even greater pressure on the state to diversify its supply chain. Although this supply chain diversification includes sourcing from Asian refineries, it would be far simpler to lift production and refining restrictions in-state while continuing to take advantage of the Jones Act suspension to import oil from Gulf states such as Texas and Louisiana.
The lack of in-state production is the result of years of policies that have vilified the oil industry, including complicated permitting processes, excessive environmental regulation, and a generally high cost of doing business in the state. A key portion of the uniquely high cost of gas in California comes from environmental compliance standards, which add approximately $0.54 per gallon, but the additional costs don’t stop there. With the highest gas tax in the country at $0.61 per gallon, and with the federal gas tax of $0.18 and the California state and local sales tax, which adds $0.12 per gallon, Californians are forced to pay far higher prices for gas than in any other state, including Hawaii.
Compounding the problem are the closures of some of California’s already diminished number of refineries. In response to the increasingly rising cost of production for refineries in the state, two refineries, Phillips 99 and Valero, shut down major portions of their operations in November 2025 and April 2026. The combined loss of their refining capacity has reduced California’s overall capacity by upwards of 20%. Such a substantial loss of refining capacity will lead to even higher prices at the pump, all while Sacramento seems intent on blaming everybody but itself for California’s dire fuel circumstances.
A threat to food costs
California’s fuel crisis is not only about gas affordability. Given the state’s sheer size and current status as the most populous, and as thousands leave in search of a lower cost of living, it is a clear and rising threat to food costs. California is one of the largest agricultural producers in the country, providing a third of the nation’s vegetables, three-quarters of America’s fruits and nuts, and 20% of the country’s milk. These agricultural feats are not, on their own, a security risk. They have become a vulnerability because of California’s high fuel costs.
As California’s gas and diesel prices rise, so does the cost of production for farmers. When the cost of fueling tractors increases, the overall cost of production rises. Additionally, since two-thirds of America’s agricultural products are transported via specialized heavy-duty trucks, the cost of food has noticeably risen, which, since such a significant amount of America’s food is produced in California, where fuel is much more expensive, translates into higher costs for the consumer. Although fuel costs are rising nationwide, California’s unique role as a primary food source for the nation has made the combination of its special blend requirements for refining, high excise taxes, reliance on foreign oil, and diminishing refining capacity a risk to the American food supply chain.
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California has some of the strictest environmental regulations in the country. Combined with a generally high cost of living, this has led both people and businesses to join a rapidly growing exodus from the state.
By requiring specific blend requirements beyond what most people would deem necessary, by instituting the highest gas tax in the nation, and by making it too artificially expensive to operate a refinery in the state, Sacramento has unnecessarily placed Californians in a seemingly permanent position of paying far more for fuel than the rest of the country; except when those fuel prices spill over into the transportation industry and lead to the ongoing rise in food prices for the entire nation.
Caleb Jasso is a senior policy adviser at the Institute for Energy Research and a native of California.