Could surging oil prices lead to higher Social Security checks next year?

Oil prices have surged this year amid the Iran war, with crude oil futures at one point topping $110. As of April 9, Iran and the U.S. had announced a two-week ceasefire, though the agreement appeared fragile.

West Texas Intermediate (WTI) crude oil futures, a key benchmark for U.S. oil, had fallen by more than 15% to roughly $95, but remained significantly higher than where they started the year.

Higher oil prices can act as a tax on consumers and raise operating costs for businesses. They may also affect Social Security benefits through the annual cost-of-living adjustment (COLA). If energy prices stay elevated through the relevant months, retirees could see a higher COLA in 2027.

How Social Security COLAs are calculated

Each year, the Social Security Administration (SSA) sets a COLA based on inflation data so retirees can maintain purchasing power. The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), rather than the CPI-U that many markets focus on.

In the third quarter of each year, the SSA takes the average CPI-W for July, August, and September and compares it with the average CPI-W for the same period the prior year. The percentage difference determines the following year’s COLA.

There cannot be a negative COLA; if prices decline, the COLA for the following year is set to zero. The COLAs for the last five years were:

• 2022: 5.9%
• 2023: 8.7%
• 2024: 3.2%
• 2025: 2.5%
• 2026: 2.8%

Why higher energy prices could raise the 2027 COLA

Both CPI-U and CPI-W include energy costs. If energy prices push CPI-W higher during the third quarter—covering July, August, and September—then the resulting COLA for 2027 would likely be larger, leading to higher Social Security checks.

The key question is whether energy prices remain elevated through those months. Several factors could influence whether prices ease, including the state of relations among the U.S., Iran, Israel, and other Middle East countries.

If the ceasefire breaks and tensions rise—potentially leading Iran to close the Strait of Hormuz again—oil prices could increase. Even if the ceasefire holds, oil and fuel prices may not fall immediately.

Timing and fuel-market effects

Crude oil does not translate into gasoline instantly. It can take several weeks to transform crude oil into gasoline, and many gas stations buy supply in advance. As a result, fuel prices may remain higher until existing supply runs out.

Business Insider reported that a strategy team at Saxo Bank wrote that even if the ceasefire holds, a return to “normal” could still take months due to the time required to reopen shuttered wells, reposition crews and vessels, and complete refinery repairs and restocking.

What forecasts say and what it could mean for retirees

It remains uncertain how gas prices and other energy-linked costs will evolve. In January, the non-partisan Senior Citizens League predicted the 2027 COLA would be 2.8%.

If oil prices stay higher than they were at the start of the year, retirees could receive a COLA higher than that forecast. The article describes the “ideal situation” for the COLA as energy prices remaining at least somewhat elevated through September and then returning toward levels expected entering 2026—meaning higher costs in the near term, followed by a higher Social Security check in subsequent years.