America cannot afford Trump’s war with Iran for long

The US economy right now is like an action movie hero in the last few minutes: bloody, but resilient.

After facing everything from inflation to global tax cuts to government shutdowns, America has somehow managed to avoid recession and the military. The labor market, however, is showing signs of wear and tear as US employers reported cutting 92 jobs in February.

But, like in an action movie, the economy is now up against the biggest enemy: a costly war in Iran, a regional power in the Middle East that just happens to sit next to what is arguably the world’s most important naval power.

The punches are coming. The war is costing the US an estimated $1 billion a day, according to two congressional sources familiar with the matter. Oil prices are expected to rise, while gasoline prices have already risen to $332. That’s the highest price you’ve reached in one of Trump’s two terms. The situation is worsening to the point that gas prices are about to go higher than they were after this article was published.

The knock-on effects of increasingly expensive oil will be felt next. Rising oil and gas prices will spread to the prices of other goods and services, especially those that rely on trucking. High prices for plane tickets are not out of the question. Grocery bills and electricity bills will also follow if the war continues.

The war with Iran nearly destroyed the forecast for lower oil prices this year, one of the pieces of the US economy that has been costing consumers. Analysts had previously expected Brent crude to trade around $60 per barrel in 2026. Instead, Brent crude rose to $93 per barrel on Friday due to the conflict.

On Wednesday, Goldman Sachs released a worst-case scenario in which $100 per barrel of oil becomes a reality in five weeks. It was based on the fact that Iran was able to limit the transportation of oil in the Strait of Hormuz, the Persian Gulf waterway near Iran that accounts for one-fifth of the world’s transportation of oil and natural gas. Still, and Goldman quickly revised its forecast for oil prices to cross into the dreaded triple-digit territory as soon as next week.

Mark Zandi, an economist at Moody’s Analytics, recently said that a “good rule of thumb” is to estimate that for every $10 per barrel increase in oil prices, the price of a liter of regular unleaded will rise by 25 cents. Prices at the pump tend to move along with crude oil, which quickly rose after the first US-Israeli airstrikes killed Iran’s supreme leader, Ayatollah Ali Khamenei.

The country’s clerical government has incentives to keep international oil prices as high as possible in a last-ditch effort to ensure its survival. Iran’s military has already targeted power plants and oil refineries in the Gulf, and the financial fallout from the war continues to grow if nothing changes. Qatar warned on Friday that oil prices could reach $150 a barrel within three weeks if the war shuts down commercial traffic in the Strait of Hormuz.

So far, this latest war has spread to the Middle East. Trump has said he believes the US will continue to attack Iran for four or five weeks, adding, “we can go longer than that.” Indeed, the Secretary of Defense, Pete Hegseth, has raised the possibility that the war will last eight weeks.

Trump has railed against “affordability” and even called it a “hoax” during an economic speech late last year. So it’s no surprise to hear him play down the long-term rise in gas prices this week.

“I don’t care at all. They will fall quickly when this is over, and when they rise, they will rise,” the president told Reuters in an interview on Thursday. Yes and no.

Even if the US and Israel stop their military attacks in the next two or three weeks, gasoline prices may remain high for a while. Economists have named this trend “rockets and feathers.” Gas prices skyrocket overnight. But those same prices drop as gently as a feather for many weeks.

However, the US is better able to withstand the oil shock than before. It enjoys a privileged position as the world’s top oil producer, so it is not as dependent on foreign oil as it was two decades ago when the Second Iraq War began. However, that does not mean that the US economy is completely bankrupt.

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Sugar prices rose this week on hopes Brazilian mills are ramping up production of ethanol instead of sugar as a cheaper fuel alternative.

The Strait of Hormuz is associated with oil, but it is also an important artery for transporting fertilizers. Fertilizer prices had already been raised before the Iran war began, creating a crisis for American farmers who are coping with depressed markets and low crop prices.

Now their spring planting budgets are facing a lot of trouble because of rising prices for urea, a form of nitrogen fertilizer commonly used on corn. Farmers facing new hardships can take it to Republicans in the November midterms.

Many companies have spent the past year restructuring their supply chains to avoid Trump’s double-digit tariffs. The war is shaking them again. Five major container shipping firms, including Maersk, have suspended their operations in the Persian Gulf, according to trade analyst Jacob Jensen at the American Action Forum.

Instead of going through the Suez Canal, companies are sending their cargo ships around the Cape of Good Hope at the tip of South Africa. The dire, dangerous conditions caused them to increase surcharges from $15,000 to $3,500 per vessel.

The structures of long-standing distrust are all falling into place.

The structures of long-standing distrust are all falling into place. Trump remains committed to his taxes, which has everyone in the US White House scrambling to rebuild the 15% global tax regime that the Supreme Court struck down. If the war in Iran continues for months, it will increase the expected price increase of food, furniture and much more.

Mr. Trump is increasingly lashing out at longtime supporters, especially in Europe. More recently, Spain held its anger when the government refused to allow US warplanes to use Iranian military bases. Trump then threatened to freeze trade with Spain, a member of NATO and the European Union. No one knows which country will land in hot water with the next president.

However, don’t count out the US economy just yet. Reports of its destruction have been greatly exaggerated in the past. Famously, it rejected the 100% call probability of a fall in 2023 created by the Bloomberg Economics model.

Only time will tell if the economy will continue to thrive even if it continues to suffer, or if it will be brought down by another war in the Middle East. However, if the battle continues, it will be difficult to stand still.

Joseph Zebarosi-Roig

Joseph Zeballos-Roig is a journalist who has covered economic policy and politics for Semafor, Business Insider and Quartz, among other publications.