War Shock on American Economy

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As geopolitical tensions escalate in the Middle East, particularly between Israel and Iran, the ripple effects are threatening to jolt the American economy—despite the physical distance. Economists and policymakers are increasingly concerned that a potential full-blown conflict could trigger energy price spikes and broader financial disruptions.

Federal Reserve Chair Jerome Powell acknowledged the risks, noting that turmoil in the Middle East often leads to temporary surges in energy prices. However, he stressed that such shocks usually don’t have lasting impacts on inflation, unlike the 1970s when events like the Iranian Revolution and the Arab oil embargo caused severe economic strain. Powell added that the U.S. is now less dependent on foreign oil, offering some cushion.

But not all economists share his optimism. JPMorgan recently warned clients that the global and U.S. economies could face “multiple shocks” this year, with a Middle East war topping the list. A major concern is the Strait of Hormuz—described by the U.S. Energy Information Administration as “one of the world’s most important oil chokepoints.” If Iran acts on its threats to disrupt the Strait, it could send global oil prices soaring. With 20 million barrels of oil passing through daily—roughly 20% of global petroleum liquids—any blockade could drastically affect supply.

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Even though the U.S. is considered energy independent, experts like ING’s James Knightley say domestic gas prices would still “rocket higher,” tightening household budgets already strained by post-pandemic inflation and looming tariff-related price hikes.

If both gas prices and tariffs squeeze consumers simultaneously, the result could be a sharp slowdown in economic activity—highlighting how distant wars can hit close to home.