Recent Middle East conflicts may deliver another blow to the U.S. economy, which has already frustrated voters, with just eight months remaining until the midterm elections. For American consumers, the most immediate impact is likely to be higher gasoline prices. On Monday afternoon, crude oil prices surged approximately 8% on the New York market. Just days before the U.S. and Israel launched strikes, the former president had boasted in a national address about reducing fuel costs. For Americans who have endured multiple rounds of price increases since the pandemic, lower gasoline prices had been a rare bright spot. The former president criticized his predecessor’s energy policies as "a disaster" during a recent congressional speech.
Gasoline prices have historically played a significant role in shaping Americans' perceptions of the economy. Since roughly one-fifth of the world’s seaborne oil and natural gas shipments typically pass through the Strait of Hormuz, which is controlled by Iran, Middle East tensions have an outsized impact on energy costs. Since the conflict erupted over the weekend, tanker traffic has already declined substantially.
Industry experts suggest that if shipping does not resume soon, crude prices could stabilize above $100 per barrel. Should prices reach that level, the national average for gasoline in the U.S. could rise from the current $3 per gallon to around $4.50. That increase alone could push overall inflation up by 1.5 percentage points and trigger ripple effects through higher airfare and transportation costs.
Although the U.S. has become an energy exporter due to a significant increase in domestic crude production, making it less vulnerable to oil price shocks than in the past, moderate price fluctuations still have a limited impact on the broader economy. However, distributional effects remain notable. Some analysts point out that while the U.S. may have achieved energy independence, rising prices continue to squeeze consumer spending, and income redirected to energy producers is not immediately spent. Others suggest that America’s status as a net energy exporter could unexpectedly boost GDP, though initial market reactions do not yet pose a "material risk to U.S. growth or inflation prospects."
The U.S. economy has previously demonstrated resilience amid tariff policies and immigration crackdowns. The economic fallout from the current conflict will largely depend on its duration. On Monday, the former president stated that the U.S. expects airstrikes to last four to five weeks but is prepared to extend them "as long as necessary." The Secretary of Defense denied that the operation would escalate into the kind of "endless war" the former president opposed, emphasizing, "This is not Iraq. This will not be an endless war."
The length of the conflict will determine the extent of disruption to oil and gas shipments from Gulf producers, which in turn will influence what Americans pay at the pump. If hostilities persist, broader risks—including renewed supply chain issues—could emerge. Economists caution that it is still too early to assess how the campaign aimed at regime change in Iran will affect energy markets.
Recent polls indicate that a majority of Americans no longer approve of the former president’s handling of the economy or his signature policies, such as tariffs. This contrasts sharply with his 2024 electoral victory, which was largely fueled by voter frustration over inflation.
Analysts are evaluating potential outcomes if the conflict drags on or escalates, leading to greater disruptions. Economists at French investment bank Natixis outlined one scenario in a Sunday report: U.S. economic growth slowing to 0.5–1.5% this year, accompanied by rising inflation. Another possibility involves at least two consecutive quarters of economic contraction. The worst-case scenario assumes an expanded war that disrupts global shipping, squeezing corporate margins through higher costs and logistical bottlenecks.
A former PIMCO chief noted that surging insurance premiums, rerouted cargo ships, and air transport disruptions could collectively form a "new wave of stagflationary shock sweeping through the global economy." Additionally, the conflict has contributed to a decline in U.S. stock markets. Previously, rising equity prices had supported consumer spending, so a downturn could dampen economic growth.
Assessing the impact on monetary policy is more complex. While rising energy prices may fuel inflation, the resulting squeeze on household finances could also suppress growth. The Middle East conflict presents a new challenge for the Federal Reserve, which has paused interest rate cuts and remains vigilant against resurgent inflation. A former U.S. Treasury Secretary and former Fed Chair indicated on Monday that the situation makes the Fed even more hesitant to cut rates.
Even before the outbreak of hostilities, recent inflation data had already raised concerns at the Fed. Minutes from the January policy meeting revealed that some officials believe additional rate hikes may be necessary if inflation remains stubbornly high. Analysts suggest that for the Fed to shift its policy stance, there would need to be a significant and sustained impact on oil prices from the Iran conflict, leading to unanchored U.S. inflation expectations. Both outcomes are possible, though neither is guaranteed.
All of these factors—including potential political costs for the former president’s Republican party in November—will depend on how the conflict evolves.