As President Donald Trump prepares to head to China for crucial negotiations with the leader of the world’s second-largest nation, it is becoming clear that the political and economic damage caused by the Iran war will not simply be ignored. Even if a deal is reached tomorrow to restart oil tanker operations, and there is little sign of that happening, Americans face months or more of fresh inflation concerns.
The question now is not whether President Trump will defend his war goals with dignity. The question is whether his presidency can recover from the body blows of war.
President Trump has amassed little political favor from the stock market, which continues to set new records. of S&P500 It has risen 7.3% since February 27, just before the US and Israel attacked Iran. Meanwhile, President Trump’s net approval rating has fallen to the lowest in his two terms, according to CNBC’s National Economic Survey.
Stocks are rising on confidence in artificial intelligence and traders’ belief that President Trump will find a way out of major economic risks. But the market is fragile and could collapse if the turmoil continues, JPMorgan analysts said in a note to clients on Monday.
“While temporary shocks, even large ones, can be absorbed, long-term disruptions cannot be absorbed,” analysts said.
Analysts have concluded that the mounting damage will be so severe that either Iran or the United States will withdraw by June. This is a reasonable bet for Wall Street firms to make, given President Trump’s notable decisions to reverse threats over tariffs and Greenland, for example.
But the pain has become so intense that a decision by one side to back out would have harsh implications for Americans already struggling to pay their bills, not to mention President Trump’s political standing.
Counterintuitively, given the scale of the supply disruption, oil prices are relatively low at the moment. global benchmark brent Crude oil futures hit $104 a barrel on Monday, up 44% since the start of the war but still below the highs triggered by Russia’s invasion of Ukraine in 2022.
The price of a gallon of gasoline in the U.S. averaged $4.50 on Tuesday, an increase of 44% from last May. Diesel rose 61%.
Iran has closed the Strait of Hormuz. The Strait of Hormuz is a narrow passage that tankers must cross to reach the Persian Gulf, where they can supply fuel to Saudi Arabia and other Middle Eastern energy giants. The closure will prevent one-fifth of the world’s oil supplies from passing through normal routes.
These countries are making great strides in getting oil shipped again. But there is only so much they can do, Amin Nasser, CEO of Saudi Aramco, the world’s largest oil producer, said on an earnings call on Monday.
“If the current disruption continues, the market will lose about 100 million barrels every week if the Strait of Hormuz remains closed,” Nasser said.
Countries were able to leverage existing oil inventories to continue stockpiling refined products such as gasoline and jet fuel in their economies. But Nasser said those stockpiles could become “extremely low” by this summer.
“Even if the Strait of Hormuz opened today, it would still take months for the market to rebalance. If the opening is delayed for a few more weeks, normalization could last until 2027,” Nasser said.
This does not take into account the time it would take to clear any mines Iran may have left in the strait, he said.
Reza Rahmani Fazli, Iran’s ambassador to China, pushed for ties between Tehran and China in a post on X on Tuesday, saying their ties are too strong for the US to overcome.
The bottom line is that energy price increases are locked in for the foreseeable future. According to the Energy Information Administration, the price of crude oil accounts for about half of the price of a gallon of gasoline.
There are less than six months left until the US presidential election. The 2026 midterm elections will be a critical referendum for President Trump and the Republican Party, which seeks to maintain control of both chambers of Congress.
State and federal taxes account for another 18% of the gas price, which is why President Trump is pushing to eliminate the federal gas tax. A tax moratorium would likely require Congressional action and, if successful, could hurt Americans in other ways. The U.S. Treasury estimates the government will borrow $2 trillion next year to finance the budget deficit, but this month debt rose above the psychological threshold of 100% of gross domestic product. Also, gas taxes primarily fund highway maintenance, and any local politician can tell the president that potholes are politically unpopular.
Cutting taxes in the midst of a costly war and rising debt would likely put pressure on long-term U.S. Treasury yields. of 10 year treasury note rose to 4.4% on Tuesday. It’s a broad consumer debt benchmark, and the higher the 10 years, the higher the interest rates on mortgages, auto loans, and credit cards. A decade of rising stock prices also poses a threat to the stock market, as it gives investors a risk-free way to profit from the government.
In other words, there is little President Trump can do in the short term to escape the economic constraints created by the Iran war. That’s inevitable for Republicans in the midterm elections, and it will influence every choice President Trump makes going forward.
All of this will be the backdrop for President Trump’s negotiations with Chinese leader Xi Jinping after Air Force One’s landing on Wednesday. Mr. Xi has his problems, but public opinion in an authoritarian regime is less severe than in the United States, but if Mr. Trump asks for help ending the war with Iran, Mr. Xi could extract a high price.
Or Mr. Xi may simply sit back and watch the economic turmoil unfold. But in the increasingly zero-sum world that President Trump has helped create, the United States will somehow end up paying for the Iran war.
