The recent US and Israeli attacks on Iran have introduced new uncertainties for the US economy, which is already grappling with tariff fluctuations, weak hiring, and persistent inflationary pressures. Economists warn that the conflict's economic impact will hinge on its duration and severity, with a short-lived skirmish likely causing minimal disruption.
Oil prices have already risen, with US crude climbing 6.3% to $71.23 per barrel and Brent crude increasing 6.7% to $77.74. While these increases are not expected to significantly affect inflation or growth, a prolonged conflict could push oil past $100 per barrel, potentially raising US gas prices to $3.50 per gallon from the current national average of just under $3. Such a scenario would accelerate inflation and slow economic growth, according to analysts.
A longer war could also disrupt the Strait of Hormuz, through which about 25% of the world's oil passes, leading to higher fuel costs for airlines and shipping, which might increase grocery prices. Natural gas prices have also jumped, partly due to a plant shutdown in Qatar, potentially raising heating costs in the US. However, the US economy is less oil-dependent than in the past, and high oil inventories may help limit price spikes.
If the conflict drags on for months, it could undermine business confidence, leading to reduced investment and hiring, similar to the effects of Trump's tariffs. Hiring in 2025 has been the weakest outside of a recession since 2002. While some measures of inflation have cooled, the Federal Reserve's preferred gauge remains around 3%, above its 2% target. Rising gas prices could exacerbate affordability concerns, which have already dented President Trump's approval ratings and boosted Democrats in recent elections.
