War Brings Pain to Parts of Domestic Economy

“The Middle East conflict has rattled markets and pushed up oil prices to the highest levels in nearly four years. Gasoline and diesel prices have shot up in response since the war started, according to AAA.

 

Nonetheless, the U.S. economy is less exposed to oil shocks today than in prior decades, and is more able to absorb a short-term rise in energy prices. In fact, as a major oil producer, U.S. energy companies and regions such as West Texas stand to profit from surging oil prices.

 

Consumers and businesses are another matter. If global oil disruptions stretch for months because of shipping logjams and damaged infrastructure, they will weigh on a domestic economy that is already under strain.

 

Airlines, where fuel is one of the top costs, are quickly exposed to soaring energy prices. Analysts at TD Cowen recently lowered their earnings targets for major carriers, and airline shares are down since the start of the war.

 

Rising fuel costs also ripple through the economy, hitting businesses that rely on fuel for transportation or operations such as Strata Critical Medical, a medical service and logistics company that recovers and transports human organs for transplant. "If we see a surge in pricing, that's going to be passed through to the customer," co-Chief Executive Melissa Tomkiel said on a recent earnings call.

 

Rising gasoline prices also threaten to hit the U.S. auto industry, which has partially pulled back from electric-vehicle production. Shares of Ford and General Motors are down since the start of the war.

 

Then there are farmers. The Persian Gulf is a major source of fertilizers, and the conflict sent fertilizer prices surging just ahead of the spring planting season.

 

Costlier fuel is a big burden for lower-income households because they tend to spend a bigger share of their income at gas stations. But fuel hikes work their way into other goods and services, too. Pricey diesel makes it costlier to ship groceries around the country, potentially boosting prices in stores. Those jet-fuel costs end up making flights more expensive.

 

Inflation has been above the Federal Reserve's 2% annual target for five years, and analysts warn that added pressure on already-stretched household budgets might cause consumers to rein in their spending, the main driver of U.S. economic growth. Spending on travel, hotels, restaurants, electronics and appliances tends to take a hit when oil prices surge and stay high for many months, said Pooja Sriram, senior U.S. economist at Barclays.

 

Barclays estimates that a 10% oil-price increase raises U.S. inflation by around 0.2 percentage points within one to two months. If the price of oil stays at or above $100 a barrel for two to three months, inflation could rise to an annual rate of 3.5% in the summer and finish the year slightly above 3% -- up from a prewar projection of 2.7%

 

Economists at Goldman Sachs estimate that a $10 increase for a barrel of oil reduces annual growth in gross domestic product by around 0.1 percentage point, if prices remain at that higher level through the end of the year.

 

A slowdown could put more pressure on a struggling labor market that has averaged a slight jobs decline in the past six months. A new government estimate Friday showed the economy closed out last year with slower growth than previously reported.

 

Meanwhile, a sustained stock market hit would threaten to curb spending by high-earning households, which have been powering the economy as asset valuations soared in recent years.

 

Energy shocks have hurt before: The Iranian Revolution of 1979 and the Gulf War of 1990 sent oil prices surging, contributing to U.S. recessions that happened around the same time. In both cases, oil production was severely affected in a couple of countries at most.

 

A doubling of oil prices, if sustained, could cause a recession, according to Bank of America. Still, oil prices remain far off from such a mark thus far, and the U.S. has some defenses it didn't have decades ago.

 

The fracking revolution has turned the country into a net energy exporter. And heavy manufacturing -- which generally consumes more oil and gas than services -- is a much smaller part of the economy today than in past decades, meaning rising energy bills sting less.

 

Mortgage rates fell in the second half of 2025 and dropped below 6% last month for the first time since 2022. That sparked hopes that would-be buyers would jump into the market at the start of the spring selling season.

 

But mortgage rates started rising again this month on concerns that the war in Iran could lead to higher inflation. Elevated inflation raises the odds that the Federal Reserve will keep interest rates higher for longer to cool prices, filtering through to higher Treasury yields and higher mortgage costs.” [1]

 

1. World News: War Brings Pain to Parts of Domestic Economy. Putzier, Konrad.  Wall Street Journal, Eastern edition; New York, N.Y.. 14 Mar 2026: A7.