WASHINGTON (AP) – The U.S. and Israeli attacks on Iran add another question mark to a weakened U.S. economy already battered by intermittent tariffs. employmentand lingering inflationary pressures.
the war is over raised oil prices Economists say prices could rise as early as this week, but the ultimate impact on the economy and inflation will depend on the length and severity of the conflict. Even if it subsides within a week or two, the impact on the economy will be small and will not last long.
But if the war drags on and oil prices rise above $100 per barrel for an extended period, growth will slow and inflation will rise, at least temporarily. American misfortune Along with the cost of necessities. After nearly five years of rising prices, concerns about affordability have eroded President Donald Trump’s support in polls and emboldened Democrats in recent elections.
So far, the price of benchmark U.S. crude oil rose 6.3% on Monday to settle at $71.23. Brent crude oil, the international standard, rose 6.7% to $77.74 per barrel. Economists said that even if increases continued at this level, inflation would hardly rise.
“Cost-conscious Americans facing an affordability crisis won’t discount this increase, but such an increase would not have a material impact on economic growth,” said Joe Brusuelas, an economist at consulting firm RSM.
Stock prices showed a recovery small profit The initial plunge on Monday was a sign of optimism that the war would be short-lived.
But if the conflict drags on, especially the one that blocks the Strait of Hormuz at the edge of the Persian Gulf, through which about 25% of the world’s oil passes, oil prices could rise above $100 a barrel. In that case, U.S. gas prices could reach $3.50 a gallon, up from Monday’s national average of just under $3.
Economists said such price increases would accelerate U.S. inflation and slow growth.
“Markets are currently really underestimating the tail risks if sustained engagement and operations don’t end soon enough to reopen the Strait of Hormuz and get everything back to de-escalation and normalcy in a timely manner,” said Alex Jacques, director of policy and advocacy at the Groundwork Collaborative and an economic advisor to President Biden.
Here are some of the effects of war on the economy.
Inflation continues even as gas prices fall
While some measures of inflation have slowed in recent months, the Federal Reserve’s recommended measure has remained at about 3% for about a year. This is above the central bank’s target of 2% and comes even as gasoline prices continue to fall steadily into 2025.
If gasoline prices rise significantly, airfares could also rise as airlines face higher fuel costs. Shipping costs will also increase, potentially increasing food prices.
Natural gas prices also surged on Monday after around 20% of the world’s gas passes through the Strait of Hormuz and a liquid natural gas plant was shut down in Qatar. This could raise heating costs in the U.S. Natural gas has already become 10% more expensive over the past year, in part due to a surge in energy use from AI-powered data centers.
Still, economists noted that the U.S. economy is less dependent on oil than in the past, and that most Americans now work in services rather than manufacturing.
Other factors could also help keep oil price increases relatively limited. Rory Johnston, founder of oil analysis firm Commodity Context, said oil inventories were fairly high before the conflict, which helped keep prices down. This is in contrast to the winter of 2022, when oil prices were already soaring due to post-COVID-19 supply chain issues, even before Russia’s invasion of Ukraine triggered an even bigger spike, he said.
Johnston said Monday’s increase was “a very small spike compared to” what happened after the Russian invasion.
Amid uncertainty, companies may withdraw
Kathy Bojancic, chief economist at Nationwide Financial, said if the Iran war drags on for months, it could hurt business confidence and lead to a decline in business investment and employment.
“When new uncertainty is injected into the business environment, it takes a toll on confidence,” she said.
The result could be similar to the impact of President Trump’s tariffs, which did not raise prices as much as many economists had feared, but seemed to weigh on job growth. Employment in 2025 will be the lowest since 2002, excluding recessions.
Consumers become more dissatisfied with the economy
Even without major inflation, the big risk for President Trump is that the American public will grow tired of his economic leadership.
Surveys show Americans already have a bleak outlook on the economy, largely due to the lingering effects of the past five years of high prices. President Trump’s attempts to paint America as in a “golden age” have had little effect on these attitudes.
Jack said the situation is likely to get worse if the conflict in Iran drags on and gasoline prices rise.
“People generally don’t think that President Trump pays attention to the things that they pay attention to,” Jack added, “and what they want President Trump to focus on is food prices. What President Trump focuses on is things like tariffs and foreign policy.”
