In 8 weeks, the Iran war has dented the U.S. economy. The damage could linger, economists say.
The Iran war, now in its eighth week, has had significant repercussions on the U.S. economy. Gas prices have soared above $4 a gallon, putting a strain on consumers and causing inflation to reach its highest level in nearly two years. Even if the war were to end soon, economists predict that Americans will continue to feel the financial impact for months to come.
According to Mark Zandi, chief economist at Moody’s Analytics, the damage has already been done, especially in terms of oil prices, which are unlikely to return to pre-war levels anytime soon. The conflict has disrupted oil supply routes through the vital Strait of Hormuz, leading to a 44% increase in Brent crude prices since the start of the war.
Recovery of oil production to pre-war levels of 100 million barrels a day is expected to be a slow process due to the extensive damage to energy facilities in the Middle East. While some forecasts suggest a potential dip in oil prices later in the year, they are likely to remain elevated throughout 2026.
The broader economic landscape is also facing challenges, with factors such as artificial intelligence impacting the job market and ongoing tariff policies adding to economic uncertainty and costs. Inflation is expected to remain high, with the Consumer Price Index reaching 3.3% annually and the Personal Consumption Expenditures price Index potentially hitting 4% by the end of the year.
The financial strain caused by higher energy prices could lead to consumer cutbacks, affecting GDP growth. EY-Parthenon chief economist Gregory Daco projects a 0.3 percentage point drag on GDP growth this year, with GDP expected to grow by 1.8% compared to 2.1% in 2025.
The impact of the Iran war is most acutely felt at the gas pump, where prices have risen by over $1 per gallon since the conflict began. Summer travel costs are also increasing, with airlines raising ticket prices and introducing additional fees to offset rising jet fuel costs.
In addition to travel expenses, Americans may soon experience higher costs in other areas of their lives. Increased diesel prices are expected to raise transportation costs, leading to higher prices for groceries and other goods. Disruptions in fertilizer production, caused by constraints in natural gas supply, could further push up food prices.
Overall, the repercussions of the Iran war are likely to continue affecting the U.S. economy for the foreseeable future. It is essential for consumers and businesses to be prepared for ongoing financial challenges as the situation unfolds.
