Iran conflict has had minimal impact on the U.S. economy up to now, according to analysts

Main Points

• According to economists, the conflict with Iran is expected to raise gasoline prices by 10 to 30 cents per gallon, but its overall effect on inflation and consumer spending in the U.S. may be limited.

• The primary economic risk for the U.S. comes from potential disruptions to oil shipments through the Strait of Hormuz, a vital route in the global oil supply network.

• If the conflict continues for an extended period, the economic consequences could become more severe.

Experts suggest that while the war with Iran is driving up energy costs, its impact on inflation and the broader U.S. economy appears modest for now.

Energy markets reacted sharply on Monday after the U.S. and Israel initiated airstrikes against Iran, resulting in the death of Supreme Leader Ayatollah Khomeini and triggering retaliatory drone and missile attacks targeting Israel, American military bases in the Middle East, and Gulf nations. By Monday afternoon, crude oil futures had surged by about 7%.

Concerns grew over possible interruptions to shipping through the Strait of Hormuz, a passageway for roughly 25% of the world’s seaborne oil. Natural gas futures also climbed by 3.25%.

Economists noted that the U.S. economy might experience only minor effects if the conflict is resolved quickly.

Mark Zandi, chief economist at Moody’s Analytics, commented on social media that while the military confrontation with Iran is devastating for those involved, the economic repercussions have so far been contained.

Economic Implications

The U.S. economy has shown resilience to recent shocks, such as tariffs and challenges to the Federal Reserve’s independence, and may similarly withstand the current crisis.

Whether the conflict causes only a temporary disturbance or escalates into a larger economic problem depends on its duration. As of Monday morning, the spike in oil prices ranked as the 38th largest since 1990, less significant than the surges seen during the COVID-19 pandemic or the 2019 drone attacks on Saudi oil infrastructure.

Patrick DeHaan, head of petroleum analysis at GasBuddy, predicted that gasoline prices could increase by 10 to 30 cents per gallon in the coming weeks, with diesel prices potentially rising by twice as much.

However, economists warned that a drawn-out war could drive oil prices much higher, fueling inflation, weakening consumer confidence, and slowing economic growth.

Kristian Ker, head of macro strategy at LPL Financial, explained that the energy sector is the main channel through which this crisis could affect global markets. Prolonged and severe disruptions to oil or natural gas supplies could influence inflation expectations, dampen business sentiment, and increase volatility across financial markets.

Expert Perspectives and Future Risks

Tom Porcelli, chief economist at Wells Fargo Economics, wrote that it would take a much larger and sustained increase in oil prices to seriously damage the U.S. economy. His models suggest that even a 10% to 30% sustained rise in oil prices would not be enough to trigger a recession or significantly alter core inflation trends. Unless the conflict is prolonged and causes major, lasting disruptions to shipping through the Strait of Hormuz, the effects on U.S. growth, inflation, and monetary policy should remain moderate—though he cautioned that the situation could change.

There is still uncertainty about how the conflict might evolve. Ryan Sweet, chief economist at Oxford Economics, noted that the U.S.-Israeli strikes on Iran alone may not have a major impact on the global economy, but the risk of multiple shocks occurring simultaneously could amplify the damage. For example, disruptions in the Strait of Hormuz could be worsened by renewed Houthi attacks in the Red Sea, or by underestimating Iran’s capacity to sustain disruptions. The length of the conflict and any potential changes in Iran’s leadership will be key factors in determining the future stability of the region and the direction of energy prices.