The U.S. and Israeli attacks on Iran add yet more question marks around a U.S. economy already buffeted by on-and-off tariffs, weak hiring, and lingering inflationary pressures.
The war has already raised oil prices and could lift 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. Should it wind down in a week or two, its economic effects would be minor and short-lived.
Yet a longer war that pushed oil past $100 a barrel for an extended period would worsen inflation, at least temporarily, while slowing growth and intensifying Americans’ unhappiness with the cost of essentials. After nearly five years of rising prices, concerns around affordability have undercut President Donald Trump’s support in polls and bolstered Democrats in recent elections.
For now, the price of a barrel of benchmark U.S. crude rose 6.3% Monday to settle at $71.23. Brent crude, the international standard, climbed 6.7% to $77.74 per barrel. An increase at that level, even if sustained, would barely lift inflation, economists said.
“While cost-conscious Americans who are dealing with an affordability crisis will not take this increase lightly, such an increase will not materially affect economic growth,” Joe Brusuelas, an economist at RSM, a consulting firm, said.
Stock prices rebounded to show a small gain Monday after initially falling sharply, a sign of optimism that the war will be short-lived.
But a longer-lasting conflict, particularly one that closed down the Strait of Hormuz at the edge of the Persian Gulf, through which roughly 25% of the world’s oil passes, could push oil past that $100 a barrel mark. Gas prices in the U.S. could then reach $3.50 a gallon, up from just under $3 on average nationwide on Monday.
Such price jumps would accelerate inflation in the U.S. and slow growth, economists said.
“Markets are right now really under-pricing the tail risk of a sustained engagement and an operation that does not wrap up quickly, restore travel through the Strait of Hormuz and get everything back to de-escalation and normal in a timely manner,” said Alex Jacquez, chief of policy and advocacy at the Groundwork Collaborative and an economic adviser to the Biden White House.
Here are some ways the war could affect the economy.
Inflation has lingered even as gas prices have fallen
While some measures of inflation have cooled in recent months, the Federal Reserve’s preferred measure has been stuck at about 3% for roughly a year. That is above the central bank’s 2% target, and has occurred even as gas prices fell steadily in 2025.
Should gas prices rise significantly, air fares could also rise as airlines face bigger fuel costs. Shipping would also become more expensive, which could add to grocery prices.
Natural gas prices also jumped Monday, as roughly 20% of the world’s gas travels through the Strait of Hormuz and a liquid natural gas plant was shut down in Qatar. That could raise heating prices in the U.S. Natural gas has already gotten 10% more expensive in the past year, thanks in part to spiking energy usage by data centers powering AI.
Still, economists noted that the U.S. economy is not as oil-dependent as it has been in the past, with most Americans now working in services, rather than manufacturing.
And other factors may help keep oil price increases relatively limited. Rory Johnston, founder of Commodity Context, an oil analytics firm, pointed out that oil inventories were quite high before the conflict, which helped keep prices in check. That’s in sharp contrast to the winter of 2022, he said, when post-COVID supply chain problems had already pushed up oil costs even before Russia’s invasion of Ukraine caused a much bigger spike.
Monday’s increase “is a very minor spike relative to” what happened after Russia’s invasion, Johnston said.
Businesses may pull 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.
“When there is an injection of new uncertainty into the business environment … that’s a hit to confidence,” she said.
The result could be similar to the impact of Trump’s tariffs, which did not raise prices as much as many economists feared, but did appear to weigh on job gains. Hiring in 2025 was the weakest, outside of a recession, since 2002.
Consumers sour further on economy
Even without a big inflation spike, a major risk for Trump is that Americans sour on his economic leadership.
According to surveys, Americans already have a gloomy outlook on the economy, largely because of the lingering effects of the price spikes of the past five years. Trump’s attempts to portray the U.S. as in a “golden age” have had little impact on those attitudes.
A protracted conflict in Iran that raised gas prices would likely make it worse, Jacquez said.
“People generally don’t think that President Trump is focused on the things that they are focused on,” Jacquez added, “and what they want him to be focused on is the price of groceries. What they think he’s focused on are things like tariffs and foreign policy.”
—Christopher Rugaber, AP Economics Writer