The war in Iran is sending oil prices surging and shipping costs up, spurring another swell of anxiety for the U.S. economy, which is already grappling with a weakening labor market and tepid consumer confidence.
Americans have already started to feel the war’s economic effects at home, specifically at the gas pump. That price pressure could spread, depending on how long the conflict lasts.
Here are the first economic effects American consumers are likely to feel.
Gas prices keep rising
Oil prices soared as war broke out, pushing the cost per barrel above $100 temporarily, and sending U.S. gas prices up. The national average reached nearly $3.58 per gallon Wednesday, up 22 percent in the past month, according to AAA. Experts think it’s headed to $4 a gallon.
The United States produces a lot of its own oil and is not as heavily dependent on Middle Eastern oil as Europe and Asia. But the ramifications are being felt stateside.
The Strait of Hormuz, a conduit for one-fifth of the world’s oil supply, has been closed for more than a week, with oil-laden vessels backing up because of the threat of Iranian attacks. As long as these shipments are stuck and the oil supply is squeezed, prices will rise, especially on the global markets where oil is traded. Higher prices from Persian Gulf oil are buoying prices for oil produced in the U.S., leaving American motorists reeling.
Prices on the global market may ease in coming weeks, because the International Energy Agency agreed to release 400 million barrels of oil from its emergency stocks, the largest release on record.
President Donald Trump pegged his campaign and the first year of his presidency on a pledge to lower prices for Americans, and falling gas prices have been a key talking point for the administration. This crisis could mar those results.
Snarled shipping routes promise higher prices
Cargo container ship traffic through the Strait of Hormuz has ground to a near-total halt. Dozens of ships are effectively stuck in or near the strait, and many more have been rerouted or delayed, moves that lead to higher prices and disrupted supply chains.
The big question for prices is how long ships remain stuck.
“The thing that’s preventing things from moving is simply that we’ve lost confidence in free navigation of the strait,” said Patrick De Haan, head of petroleum analysis for the price app GasBuddy.
Beyond the strait, temporary closures and disruptions of several international airports in the conflict zone, including in busy Dubai, paused nearly one-fifth of global airfreight capacity, disrupting shipments of consumer electronics, pharmaceuticals and precious metals.
“The container rates are off the charts,” said John Haber, a transportation expert. “It’s almost like when covid hit in the region there.”
Farmers could be among the first Americans to feel a financial jolt from the war. Three of the world’s top 10 producers of urea and anhydrous ammonia fertilizer are in the conflict zone: Saudi Arabia, Qatar and Iran. Urea prices jumped by roughly one-quarter last week and are expected to head higher if the strait remains closed, said Josh Linville, a vice president at StoneX, a financial services firm.
This could start to appear in U.S. agricultural costs, meaning — eventually — groceries.
For some companies, the concern is already showing up in financial disclosures. Miller Industries, a Tennessee manufacturer of tow trucks and recovery equipment, warned that a prolonged conflict could push fuel prices higher still, increasing costs for businesses that depend on transportation.
Flights could get more pricey
The near-blockage of Persian Gulf oil shipments is sending jet fuel prices soaring, which will add to air cargo bills and could affect consumer flight prices.
United Airlines CEO Scott Kirby said at a conference last week that airfare prices could quickly rise as his company confronts runaway jet fuel costs.
Airline price hikes typically happen on a lag of a couple of months. Demand for air travel remains high, and airlines were able to raise prices when Russia’s invasion in Ukraine first sent oil prices soaring, TD Cowen analyst Tom Fitzgerald wrote in a note.
“Much will come down to how long the conflict lasts, whether the Straight of Hormuz stays closed, and where jet fuel prices settle in,” he wrote.
Inflation will move up
Uncertainty about how long the conflict will last, disrupted shipping lanes and surging oil prices could hike inflation in the U.S. economy.
Inflation cooled more than expected in January and remained unchanged in February, but the war could put pressure on consumer prices as well as costs for manufacturing, where oil is a key ingredient.
The economy could see a slight uptick in inflation in March and some pressure on prices in April, said Kathy Bostjancic, chief economist for Nationwide Mutual. If the war lasts less than six weeks, as Trump has said he expects, the increase to inflation should be temporary and Nationwide would still expect solid economic growth this year.
“The longer the conflict and disruptions continue, the larger the possible negative hit to business and consumer confidence from increased uncertainty that would inflict further drag on economic activity,” Bostjancic wrote in a note Wednesday.
But in addition to hitting oil and gas prices, the war and its effects could deliver a blow to consumer confidence in the economy — a measurement that has already been shaky in the past year.
David J. Lynch and Evan Halper contributed to this report.
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