How will the war on Iran impact the US economy?

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New York City, United States – Rising prices on the back of US-Israel strikes on Iran are adding to the economic pressure facing US consumers despite efforts by US President Donald Trump to paint the war as a success.

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

Trump’s declaration comes even as the Strait of Hormuz remains closed, cutting off oil from the Gulf amid warnings from Iran, which continues to strike ships, that oil could reach $200 per barrel.

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

The magnitude of the economic pressure on consumers will depend on how long the war lasts and, crucially, how soon shipping traffic can return to the Gulf.

“If it drags on and especially if it remains at this intensity, prices will be higher, and more volatile for consumers,” said Rachel Ziemba, an adjunct senior fellow at the think tank Center for a New American Security.

“If it ends quickly, and it’s a credible and stable end, then we could see prices fairly quickly normalising”.

If the war lasts more than a few weeks, however, observers say the US economy is more likely to see deepening impacts, like 1970s-style “stagflation” or a recession.

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

According to Sam Ori, who directs the Energy Policy Institute at the University of Chicago, in the past, when oil prices have reached 4 percent to 5 percent of gross domestic product and stayed elevated, “that’s always triggered a recession.”

The US will not hit that threshold as quickly as it would have in the 1970s, when its economy was more deeply dependent on foreign oil, Ori said, but added he expected a recession if prices remained about $140 a barrel for most of the year.

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

Ori, who used to run an oil shock war game for US officials, said he would have been “laughed out of the room” if he had proposed a scenario where the strait was closed for six months, because many analysts see it as “too big to fail”.

Ori says that assessment is still likely, but recent developments “are chipping away at that level of certainty”.

The Gulf, which separates the Arabian Peninsula and Iran, provides more than 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 the “strongest indicator that this is going to get resolved pretty fast, because it’s impossible to fathom what would happen if it didn’t”, Ori said.

He added that the conflict has now entered a phase in which it may be moving out of US control, especially as some countries have turned off the oil wells as they run out of storage.

While those events have now been baked into oil prices, the things that he is on the lookout for include “successful mining of the strait, some kind of structural blockage, or a battlespace development that binds the US into a longer, drawn out conflict”, outcomes that could signal a total loss of the strait for an unknown amount of time and create the “conditions for a complete meltdown”.

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

Patrick DeHaan, who leads petroleum analysis for the app GasBuddy, said that the national average as of Wednesday is now $3.59 per gallon ($0.95 per litre) – up 65 cents since February.

The highest increases are near the coasts, where US petrol, diesel and jet fuel supplies are more easily diverted to meet global demand, according to DeHaan.

An end to the conflict could lower petrol prices within weeks, DeHaan said, but “every week that this goes on, we could see another 25 to 40 cent increase”.

Robert Rogowsky, an adjunct professor at Georgetown University’s School of Foreign Service, said lower-income people in particular, “will pay the price for this inflationary burst”.

As the war continues, it will also nudge up prices for consumer goods.

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

In the short term, consumers should not feel much of a pinch, Sand said. But if the conflict lasts for a month, some goods will be delayed, “and of course, the price tag on those goods also goes up.”

The war also means that the Red Sea, mostly closed in 2025 due to Houthi attacks, will likely stay closed throughout 2026, Sand said. It was expected to reopen, which could have lowered consumer prices.

Oil and oil byproducts from the Gulf are also used directly in consumer goods, like plastics, pharmaceuticals and fertilisers. Shortages now may mean higher prices later.

Fertilisers from the Gulf, for example, are needed soon for spring planting. Delays could affect crops next year.

A shortage of helium from the Gulf could also impact semiconductor manufacturing, delaying car manufacturing and other industries, Ziemba said.

Higher consumer prices could increase the risk of “stagflation”, when stagnant economic growth occurs alongside high unemployment and high inflation.

That is 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’s certainly concern about stagflation again.”

That combination of high inflation plus high unemployment, Borenstein said, “is just 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.

The Fed can lower interest rates to prompt spending and hiring, which can make inflation worse, or it can raise interest rates to lower inflation, which can slow hiring.

Ziemba said higher oil prices likely point to “inflation remaining stickier, which means it’s harder for the Fed to cut interest rates.”

As a result, “mortgage rates and other long-term interest rates might be stuck at their current levels,” Ziemba said. Mortgage rates, which were at 5.99 percent on February 27, are up to 6.29 percent as of March 12.

Even if the war ends tomorrow, it may already be accelerating longer-term shifts.

Rogowsky called US attacks on Iran “an injection of adrenaline” into a realignment already under way, as middle powers seek to reduce their reliance on the US.

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

Logistics consultant David Coffey said for some businesses, the war is expediting conversations about risk. “They may have been assuming ‘Yes, there’s risk in the Middle East,’ but they may not have been assuming that this would kick off”, Coffee said.

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

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

“We have spent at least $1 trillion in interest on the Iraq and Afghanistan wars – and rising, because it’s not like we’ve paid off any of that principal”, Peltier said.

Military spending, she said, also tends to create fewer jobs than government investment in education or healthcare. “If we’re spending money on this, what are we not spending money on?” Peltier asked.