Impact of Iran war: Oil prices and US bond yields weigh on US consumers

In the midst of the war between the United States and Iran, consumers are facing the double whammy of soaring oil prices and U.S. bond yields, creating a deepening financial crisis.

Oil prices have accelerated again in recent weeks as fighting between the US and Iran escalates again, which should lead to higher prices. On top of that, the 10-year Treasury yield rose to a 19-year high this week, threatening to intensify affordability challenges for consumers as borrowing costs for things like homes and cars rise.

“Consumers are under tremendous economic pressure,” said Mark Zandi, chief economist at Moody’s Analytics.

As of Sept. 11, the total bill per household since the U.S.-Iranian conflict began was about $1,760, according to a Moody’s Analytics analysis.

More than half, or $930, of a household’s total bill is due to rising energy costs, including upward pressure on prices of gasoline, diesel and jet fuel, Zandi said. Moody’s found that U.S. consumers have cumulatively spent more than $121 billion extra on energy since the war began.

Another $425 of this $1,760 is due to interest rate increases since the outbreak of the war. The remaining $405 will come from increased military spending, which Zandi said will be borne by consumers either through higher national debt or higher taxes.

usa crude oil Prices topped $105 a barrel on Tuesday, the highest closing price since mid-May. Tuesday’s rise came despite Energy Secretary Chris Wright’s assurances to CNBC that the Saudi pipeline closure would last only a few days.

The average U.S. gasoline volume on Tuesday was more than $4.32, an increase of 6% month-over-month and 36% year-over-year, according to AAA. Labor Day travelers earlier this month faced record holiday prices.

Diesel prices per gallon have hit record highs of more than $6 in recent days, and are up about 70% from the same day last year, according to AAA. Economists have warned that companies could pass on the higher costs of diesel, the primary fuel type used by truckers to transport food and other goods, to consumers in the form of higher prices.

In a closely tracked consumer sentiment survey by the University of Michigan, just over 29% of respondents mentioned September gas prices. This is up from about 12% and 6% for the same months in 2024 and 2025, respectively.

Deloitte found that a 20% increase in oil prices increases the estimated inflation rate by about three-tenths of a percentage point. However, this does not include the knock-on effects on the prices of airline tickets or food, for example, which could mean a larger overall impact on price increases, the consultancy said in a May report.

Airfare prices have been one of the fastest-growing categories in the Bureau of Labor Statistics’ Consumer Price Index since the outbreak of the war. Prices rose more than 23% in August compared to the same month last year, according to the latest BLS data released last week.

of 10 year US Treasury yield On Tuesday, it rose to its highest level since 2007. Benchmarks for consumer loans and corporate funding are about 1 percentage point higher than levels a year ago.

The rally is driven primarily by bond investors’ concerns about the war’s impact on inflation and the U.S. government’s ability to cover its growing debt mountain. Rising yields could put a damper on consumers’ ability and confidence to buy big-ticket items.

The Michigan Consumer Survey found that as of July, 44% of respondents expected borrowing costs to rise next year, up 10 percentage points from a year ago. Participants were also more likely than a year ago to say it was a bad time to buy a car, and an increasing proportion cited high interest rates and tight credit conditions as reasons for their negative opinion.

The average interest rate on a 30-year fixed mortgage (roughly tied to the 10-year yield) rose above 7% this month for the first time in more than a year. Since the outbreak of war, mortgage interest rates have been on the rise as long-term bond yields have risen.

Rising mortgage costs could further exacerbate the housing affordability crisis sweeping the country. The Atlanta Fed’s Home Ownership Price Index fell this summer to a rare low on record.

“People will experience rising interest rates in the same way that they experience inflation,” said Diane Swonk, chief economist at consulting firm KPMG. “It makes things harder to get.”

Nicole Bashaw, labor economist at ZipRecruiter, said higher borrowing costs for companies could cause a hiring slowdown. Hesitancy to increase pay has made it difficult for Americans looking to enter the workforce or change jobs, reinforcing the widely held view that today’s job market is a “fewer jobs, fewer layoffs” environment.

Bashaw said the Federal Reserve’s rate hikes could give companies another reason not to add employees.

A CNBC Fed survey found that a majority of respondents expect the Fed to raise rates at least twice next year. Federal funds futures are pricing in a more than 92% chance that the Fed will raise interest rates at its Wednesday meeting, which would be the first rate hike by a U.S. central bank in more than three years.

An increase in borrowing costs can increase the amount consumers owe on a line of credit. Total U.S. credit card debt rose to $1.26 trillion in the second quarter, near an all-time high, according to the New York Fed.

Economists say higher energy costs as a result of the war are offsetting the boost from high tax refunds from President Donald Trump’s “Big and Beautiful Bill.”

But they widely point out that low-income consumers, who typically spend a larger share of their income on energy, are feeling the pain more acutely. This helped drive a “K”-shaped economy, a term used to describe an uneven economic recovery across different income classes since the pandemic.

Government data for August showed that overall inflation is rising again faster than income growth as energy prices soar. As a result, U.S. consumers will see negative inflation-adjusted earnings growth and less purchasing power.

Luke Tilley, chief economist at M&T Bank and Wilmington Trust, said consumers are drawing down savings as earnings dry up and real wages fall. In 2026, the U.S. personal savings rate has fallen to a level rarely seen since the global financial crisis.

Tilley said that while U.S. consumers may ultimately have to cut back on spending, it’s a worrying outcome given that they account for a large portion of the country’s gross domestic product. According to the U.S. Bureau of Economic Analysis, consumer spending increased by 0.2% in July, a slight deceleration from the previous month.

“It’s a reflection of the times,” Tilley said. “Costs are rising and revenue growth is slowing, so something has to be done.”