The US economy has always been unstable. War in Iran could increase uncertainty

WASHINGTON (AP) – The U.S. and Israeli attacks on Iran raise more questions about a U.S. economy already weakened by tax cuts, weak hiring, and stagnant inflation.

The war has already raised oil prices and could raise prices at the pump as early as this week, but the ultimate impact on the economy and inflation will depend on the length and severity of the conflict, economists say. If it ends in a week or two, its benefits may be small and short-lived.

However, a long war that pushed oil above $100 a barrel for a long time would increase inflation, at least in the short term, while reducing growth and increasing the dissatisfaction of Americans with the price of essentials. After nearly five years of rising prices, concerns about affordability have eroded President Donald Trump’s support in the polls and strengthened Democrats in recent elections.

Meanwhile, the price of a barrel of benchmark US crude rose 6.3% Monday to settle at $75. Brent crude, the international benchmark, rose 6.7% to $77.74 a barrel. An increase at that rate, even if sustained, will not raise inflation, economists said.

“While Americans concerned about the problem of affordability do not welcome this increase, such an increase will not affect the economy,” Joe Brusuelas, an economist at RSM, a consulting firm, said.

Stock prices further showed small gains Monday after initially falling sharply, a sign of hope that the war will be short-lived.

But the long-lasting conflict, especially the one that closed the Strait of Hormuz at the edge of the Persian Gulf, through which more than 25% of the world’s oil passes, could push oil beyond the $100 barrel mark. Gas prices in the U.S. could reach $350 a gallon, down from less than $3 on average nationwide on Monday.

Such inflation would boost inflation in the US and slow growth, economists said.

“Markets are now discounting the tail costs of cooperation and operations that do not end quickly, to restore traffic through the Strait of Hormuz and to make everything back to normal and normal in time,” said Alex Jacquez, head of policy and representation at the Groundwork Collaborative and an economic adviser to the Biden White House.

Here are some ways that war can affect the economy.

Inflation has continued to rise even as gas prices have fallen

While other measures of inflation have slowed in recent months, the Federal Reserve’s benchmark rate has stood at about 3% for almost a year. That’s above the 2% target for the central bank, and it happened even though gas prices will drop slightly in 2025.

If gas prices rise significantly, airfares may also rise as airlines face higher fuel costs. Shipping would also be expensive, which could add to grocery costs.

Natural gas prices also rose on Monday, as nearly 20 percent of the world’s natural gas flows through the Strait of Hormuz and liquid gas was shut down in Qatar. This could raise heating costs in the US Natural gas has already gotten 10 percent cheaper in the past year, thanks in part to energy efficiency and data-driven AI.

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However, economists have noted that the US economy is not as dependent on oil as it was in the past, with many Americans now working in services, not manufacturing.

And some things can help to keep the price of oil low. Rory Johnston, founder of Commodity Context, an oil research firm, said that oil prices were very high before the conflict, which helped keep prices up. This contrasted with the winter of 2022, he said, when post-COVID supply problems had already pushed up oil prices even before Russia’s invasion of Ukraine caused a huge spike.

Monday’s increase is “a tiny bit smaller than” what happened after the Russian invasion, Johnston said.

Businesses can bounce back amid uncertainty

If the Iran war drags on for months, it could also torpedo business confidence, which could lead companies to invest and hire less, said Kathy Bostjancic, chief economist at Nationwide Financial.

“If there’s an injection of new uncertainty into the business environment … it’s a blow to confidence,” he said.

This effect may be similar to the impact of Mr. Trump’s taxes, which did not raise prices as economists feared, but appeared to weigh on job creation. Hiring in 2025 was the lowest, other than the lowest, since 2002.

Consumers tend to be more economical

Even without high inflation, the biggest risk for Trump is that the American people are disappointed with his economic leadership.

According to the survey, Americans already have a bleak outlook on the economy, largely because of the stagnant inflation of the past five years. Mr. Trump’s attempt to portray the US as a “golden age” has not affected this trend.

The long-running conflict in Iran that has raised gas prices is likely to worsen, Jacquez said.

“People often don’t think President Trump is focused on the things he’s focused on,” added Jacquez, “and what they want him to focus on is the price of groceries. What they think he’s focusing on are things like tariffs and foreign policy.”