How would a war on Iran affect the US economy? | US-Israel war over Iran news

New York City, United States – Rising prices in the wake of the US-Israel strike on Iran are adding to the financial pressures facing US consumers despite US President Donald Trump’s efforts to paint the war as a success.

On Wednesday, Trump declared, “We won — it was over in the first hour.”

Trump’s announcement comes even as the Strait of Hormuz is closed, cutting off oil from the Gulf amid warnings from Iran, which continues to attack ships, that oil could reach $200 a barrel.

Oil prices were above $100 per barrel on Sunday and today.

The extent of the economic pressure on consumers will depend on how long the war lasts and, importantly, how quickly shipping traffic returns to the bay.

“If it drags on, and especially if it stays at this intensity, prices will go up and consumers will be more volatile,” said Rachel Zimba, associate senior fellow at the think tank Center for New American Security.

“If it ends quickly and it’s a reliable and stable end, we could see prices normalize fairly quickly.”

If the war lasts more than a few weeks, observers say the US economy is likely to see deeper effects, such as a 1970s-style “stagnation” or recession.

When can we see a recession?

On Thursday, the International Energy Agency said in a report that “war in the Middle East is creating the largest supply disruption in the history of the global oil market.”

According to Sam Ory, who directs the Energy Policy Institute at the University of Chicago, when oil prices reach 4 percent to 5 percent of gross domestic product and stay high, “that almost always triggers a recession.”

Ory said the U.S. would not hit that threshold as it did in the 1970s, when its economy became more deeply dependent on foreign oil, but said he expected a recession if prices remained around $140 a barrel for most of the year.

Alternatively, “the indefinite closure of the Strait of Hormuz would exceed that number, which would not take a year,” he said.

Ory, who has been running an oil shock war game for US officials, said he would have been “laughed out of the room” if he had proposed a scenario of closing the strait for six months, as many analysts see it as “too big to fail”.

Ory says the assessment is still likely, but recent developments are “moving away from that level of certainty”.

The Gulf, which separates the Arabian Peninsula and Iran, carries one-fifth of the world’s oil supply via tanker ships through the Strait of Hormuz.

The severity of that threat to the global economy is “a strong indicator that it will be resolved very quickly, because it’s impossible to understand what will happen otherwise,” Ory said.

He said the conflict had now entered a stage beyond US control, especially as some countries turned off oil wells as their reserves ran out.

Although those events are now burned into oil prices, “successful mining of the strait, some form of structural obstruction, or development of a battlefield that would tie the US into a protracted, protracted conflict,” the results include the complete loss of the strait for an unknown period of time.

High prices

The war is already driving up gasoline prices for US consumers.

Patrick DeHaan, who leads petroleum analysis for the GasBuddy app, said Wednesday that the national average is now $3.59 per gallon ($0.95 per liter) — up 65 cents from February.

According to DeHaan, most of the increase is near the coast where US gasoline, diesel and jet fuel supplies can be more easily diverted to meet global demand.

The end of the conflict could lower gasoline prices within weeks, but “every week this goes on, we could see another 25 to 40 percent increase,” DeHaan said.

Robert Rogowski, an assistant professor at Georgetown University’s School of Foreign Service, said low-income people in particular “will pay the price for this burst of inflation.”

As the war continues, it also pushes up the prices of consumer goods.

The backup in the Strait of Hormuz is already causing congestion at ports worldwide, said Peter Sand, chief analyst at cargo intelligence platform Xeneta.

In the short term, consumers shouldn’t feel much of a pinch, Sand said. But if the conflict continues for a month, some goods will be delayed, “and of course, the price of those goods will go up.”

Sand said the Red Sea, which was mostly closed in 2025 due to Houthi attacks, will remain closed throughout 2026. It is expected to reopen, which may reduce consumer prices.

Oil and oil byproducts from the Gulf are used directly in consumer goods such as plastics, pharmaceuticals and fertilizers. A shortage now could mean higher prices later.

Fertilizers from the Gulf, for example, are needed soon for spring planting. The delay may affect the next year’s crops.

A lack of helium from the Gulf could affect semiconductor manufacturing, delaying car manufacturing and other industries, Zimba said.

Fear of 1970s-style ‘freezing’

High consumer prices can increase the risk of “stagnation” when stagnant economic growth occurs with high unemployment and high inflation.

How the US economy responded to the oil price shocks of the 1970s.

Severin Borenstein, faculty director of the Energy Institute at the University of California, Berkeley’s Haas School of Business, said, “There is definitely concern about stagnation again.”

The combination of high inflation and high unemployment, Borenstein said, “is going to be really tough for the Fed to deal with.”

“They can either juice the economy or slow it down, and the two problems call for opposite solutions,” Borenstein said.

While raising interest rates may worsen inflation or slow hiring, the Fed may lower interest rates to stimulate spending and hiring.

High oil prices “will keep inflation stuck, meaning it will be harder for the Fed to cut interest rates,” Zimba said.

As a result, “mortgage rates and other long-term interest rates may be stuck at their current levels,” Zimba said. Mortgage rates were up from 5.99 percent on February 27 to 6.29 percent on March 12.

Even if the war ends tomorrow, it could accelerate already long-term changes.

As the middle powers try to reduce their dependence on the US, Rogowski called the US attacks on Iran an “adrenaline injection”.

That realignment “will affect our terms of trade, which will have a unique impact on our economy,” Rogowski said.

Logistics consultant David Coffey For some businesses, the war is accelerating conversations about risk. “They may have predicted, ‘Yes, there is danger in the Middle East,’ but they may not have predicted that it would kick off,” Coffey said.

Making supply chains more secure could increase costs for consumers, he said.

Military spending and the US budget

Meanwhile, Heidi Peltier, a senior researcher at Brown University’s Costs of War Project, said war means long-term costs around debt payments and veterans’ health care.

“We’ve spent at least $1 trillion on the wars in Iraq and Afghanistan — and rising, because we haven’t paid a single penny,” Peltier said.

Military spending, he said, creates fewer jobs than government investment in education or health care. “If we’re spending money on this, what aren’t we spending money on?” Peltier asked.