The U.S. economy right now is like the hero of an action movie in the last few minutes: bloodied, but resilient.
After facing everything from stubborn inflation to sweeping global tariffs to a record-breaking government shutdown, America has somehow managed to avoid a recession and soldier on. The labor market, though, is showing bruises as U.S. employers reported cutting 92,000 jobs in February.
But, as in an action movie, the economy is now up against its biggest foe yet: a costly war in Iran, a regional power in the Middle East that just happens to sit next to what is arguably the world’s most critical maritime energy chokepoint.
The blows are already coming. The war is costing the U.S. an estimated $1 billion a day, according to two congressional sources with knowledge of the matter. Oil prices are now forecast to go higher, while gas prices have already jumped to $3.32. It’s the highest price it has reached in either of Trump’s two terms. The situation is so in flux that gas prices are poised to climb higher than that after this article is published.
The knock-on effects of increasingly expensive oil will be felt next.
The knock-on effects of increasingly expensive oil will be felt next. Higher costs for oil and gas will spread to the costs of other goods and services, particularly those relying on trucks for transportation. Higher prices for airline tickets aren’t out of the question. Grocery bills and electricity prices will also follow suit if the war drags on.
The war with Iran almost instantly wrecked forecasts for lower oil prices this year, one of the only slices of the U.S. economy that had been getting cheaper for consumers. Analysts had previously expected Brent crude to trade at about $60 per barrel in 2026. Instead, Brent crude rocketed to $93 per barrel as of Friday due to the conflict.
On Wednesday, Goldman Sachs published a worst-case scenario in which $100 per barrel of oil becomes a reality in five weeks. That was based on whether Iran managed to choke off oil shipments in the Strait of Hormuz, the Persian Gulf waterway near Iran that accounts for one-fifth of global oil and natural gas shipping. It did, and Goldman quickly updated its forecast for oil prices to cross into dreaded triple-digit territory as soon as next week.
Mark Zandi, chief economist at Moody’s Analytics, recently said “a good rule of thumb” is to assume that for every $10 per barrel increase in oil prices, the cost of a gallon of regular unleaded will rise by 25 cents. Prices at the pump usually move in tandem with crude oil, which quickly climbed after the first wave of U.S.-Israeli airstrikes that killed Iran’s supreme leader, Ayatollah Ali Khamenei.
The country’s clerical regime does have incentives to drive up global oil prices as high as possible in a last-ditch effort to ensure its survival. The Iranian military has already targeted power plants and oil refineries in the Gulf, and the financial fallout of the war stands to get worse if nothing changes. Qatar warned on Friday oil prices may reach $150 per barrel within three weeks if the war shuts down commercial traffic in the Strait of Hormuz.
So far, this latest war has only intensified across the Middle East. Trump has stated he believes the U.S. will keep up its air-and-sea offensive against Iran for four or five weeks, adding, “we have capability to go far longer than that.” Indeed, Defense Secretary Pete Hegseth raised a scenario in which the war lasts eight weeks.
Trump has railed against “affordability” and even called it “a hoax” during an economic speech late last year. So it wasn’t surprising to hear him downplay a possible long-term spike in gas prices this week.
“I don’t have any concern about it. They’ll drop very rapidly when this is over, and if they rise, they rise,” the president told Reuters in a Thursday interview. Yes and no.
Even if the U.S. and Israel call off their military campaign in the next two or three weeks, gasoline prices could remain elevated for a while. Economists have named this tendency “rockets and feathers.” Gas prices shoot up like a rocket overnight. But those same prices fall delicately like a feather over many weeks.
Still, the U.S. is better able to withstand an oil shock than in the past. It enjoys a privileged position as the world’s top oil driller, so it’s not as dependent on foreign oil supplies as it was two decades ago when it launched the second Iraq War. Still, that doesn’t mean the U.S. economy is completely inoculated.
Sugar prices rose this week with the expectation of Brazilian mills stepping up production of ethanol instead of sugar as a cheaper fuel alternative. The Strait of Hormuz is associated with oil, but it’s also a vital artery for fertilizer transport. Fertilizer prices were already elevated prior to the Iran conflict, dealing a blow to American farmers coping with dwindling markets and lower crop prices. Now their spring planting budgets face more strain due to rising prices for urea, a version of nitrogen fertilizer often used for corn. Farmers facing fresh hardship could take it out on Republicans in the November midterms. Many companies spent the past year reshuffling supply chains to avert Trump’s double-digit tariffs. The war is jolting them anew. The top five largest container shipping firms, including Maersk, suspended their operations in the Persian Gulf, per trade analyst Jacob Jensen at the American Action Forum. Instead of traveling through the Suez Canal, the companies are sending their cargo fleets around the Cape of Good Hope at the tip of South Africa. The fraught, dangerous environment caused them to add surcharges ranging from $1,500 to $3,500 per container. The building blocks of prolonged uncertainty are all falling into place. The building blocks of prolonged uncertainty are all falling into place. Trump remains devoted to his tariffs, which affect just about everyone in the U.S. The White House is scrambling to rebuild a 15% universal tariff regime that the Supreme Court knocked down. If the war in Iran stretches on for months, it will magnify the expected price increases for food, furniture and much more. Trump continues lashing out at long-standing allies, particularly in Europe. Recently, Spain caught the brunt of his fury when the government refused to allow U.S. warplanes to use their bases for the Iran war. Trump then threatened to cut off trade with Spain, a member of NATO and the European Union. No one knows which country will land in hot water with the president next. Still, don’t count out the U.S. economy just yet. Reports of its demise have been greatly exaggerated before. Famously, it defied a 100% probability call for a recession in 2023 made by Bloomberg Economics models. Only time will tell if the economy keeps going despite sustaining so many body blows, or if it’s knocked down by another war in the Middle East. The longer the war goes on, though, the harder it will be to stay standing.
Joseph Zeballos-Roig
Joseph Zeballos-Roig is a reporter who has covered economic policy and politics for Semafor, Business Insider and Quartz, among other publications. Recommended
