U.S. national average gas prices surpassed $4 per gallon on Tuesday as military conflict with Iran escalated, drawing sharp criticism from lawmakers over the economic and human cost. Data from the American Automobile Association (AAA) showed the national average price of gas at $4.0190 per gallon, while Brent crude rose to $92.06 per barrel and West Texas Intermediate (WTI) crude increased 1.02% to $85.20 per barrel. The price surge coincides with rising casualties and significant defense spending, with Secretary of War Pete Hegseth stating the war has cost the U.S. $37.5 billion as he requests an additional $70 billion in funds.

Political Reaction and War Costs

Sen. Bernie Sanders (I-VT) and House Minority Leader Rep. Hakeem Jeffries (D-NY) slammed President Donald Trump regarding the ongoing conflict. In a post on X, Sanders called the war "unconstitutional," noting it had resulted in more American soldiers dead and wounded, as well as innocent casualties in Iran. He argued the conflict was causing rising prices globally and demanded Congress stop funding the "illegal war." Jeffries also took to X, decrying that gas prices are up, U.S. service members are being killed, and Iran is "stronger" than before the war began.

Market Metrics and Analyst Commentary

The return of gas prices to the $4 threshold marks a significant shift in the energy market. GasBuddy analyst Patrick De Haan noted that gas prices hitting the $4 per gallon national average twice this year is a phenomenon not recorded even during the 2008 financial crisis. The escalation follows the collapse of an interim agreement and continued military strikes, with the Pentagon reporting U.S. military casualties have risen to 17. Higher energy costs threaten to increase prices for groceries and everyday consumer items, raising affordability concerns for voters.

International Response

Iran's Parliament Speaker Mohammad Bagher Ghalibaf criticized the Trump administration for sending more military equipment to the region while claiming to seek an end to the hostilities. The situation remains fluid as U.S. Central Command continues operations aimed at degrading Iranian military capabilities.

Prediction markets have turned increasingly bullish on U.S. crude, with traders now assigning a 51% probability that oil prices will climb above $90 per barrel before the end of the month. This shift comes as crude has staged a sharp 25% rally this month, reigniting investor interest in funds tied to oil producers, refiners, and energy services companies. The move reflects growing expectations that tightening supply dynamics and firm demand could keep energy prices elevated.

According to The Kobeissi Letter, the probability of U.S. oil topping $90 this month has risen by 19 percentage points. If crude reaches that threshold, it would represent a roughly 34% gain since July 2, with the potential to push average U.S. gasoline prices toward $4.20 per gallon. Oil is currently trading around $85.

Energy ETFs Could Be Early Winners

Historically, rising crude prices have boosted the earnings outlook for oil producers and exploration companies, making energy-focused ETFs a natural way for investors to express a bullish view on the commodity without buying oil futures directly.

The Energy Select Sector SPDR Fund (NYSE: XLE), the largest U.S. energy ETF, typically benefits when higher crude prices translate into stronger cash flows and shareholder returns. Investors looking for greater sensitivity to oil prices often turn to the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP), whose portfolio is tilted toward exploration and production firms that generally experience a larger earnings impact from rising oil prices than integrated energy giants. Another fund to watch is the VanEck Oil Services ETF (NYSE: OIH), which tracks companies providing drilling equipment and oilfield services.

Leveraged Energy ETFs May See Increased Trading Activity

Should oil continue its upward momentum, leveraged ETFs could attract short-term traders seeking amplified exposure to the sector. Among the most actively traded products are the Direxion Daily Energy Bull 2X Shares (NYSE: ERX), which aims to deliver twice the daily performance of the S&P Energy Select Sector Index, and the Direxion Daily Energy Bear 2X Shares (NYSE: ERY) for investors betting on a pullback. Because these funds reset their leverage daily, they are generally intended for tactical trading rather than long-term investing.

Commodity ETFs Could Also Gain Attention

Beyond equity-based funds, investors expecting oil itself to move higher may also look at commodity ETFs such as the United States Oil Fund (NYSE: USO), which tracks near-term WTI crude oil futures, and the Invesco DB Oil Fund (NYSE: DBO), which uses an optimized futures strategy designed to reduce the impact of futures roll costs. If crude does push above $90, energy-sector ETFs could once again outperform the broader market, particularly after lagging many of this year’s AI- and technology-driven gains. Conversely, any easing in geopolitical tensions, stronger-than-expected production, or weaker global demand could quickly reverse the recent surge in oil prices, underscoring the sector’s inherent volatility.