Gasoline prices in the United States soared to $3.20 a gallon on Wednesday, AAA data showed, flashing a warning sign for the nation’s economy as war escalates in the Middle East.
A topsy-turvy stock market, a spike in oil prices and jumpy bond yields have taken hold alongside the rise in fuel costs.
The overall economic impact of the war will likely depend on the duration and intensity of the fighting, economists told ABC News. A prolonged conflict threatens to drive up an array of consumer prices and shrink economic growth, they added, while a short-lived battle could leave little lasting damage.
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“If the conflict and the disruption to oil supplies last a week or two, that’s no big deal. If it lasts a month or two, the economic consequences will become meaningful. Anything longer than that will do a lot of damage to the economy,” Mark Zandi, chief economist at Moody’s Analytics, told ABC News.
Here’s what to know about potential economic fallout from the Iran War and how it could impact you, according to some economists.
Oil and gasoline prices take center stage
The link between the Iran war and the U.S. economy stems from oil and gas prices, which hold implications for prices paid by shoppers and costs borne by businesses, some economists said.
“The world needs oil to move goods and move people,” Ramanan Krishnamoorti, a professor of petroleum engineering at the University of Houston, told ABC News.
Brent crude prices originally soared more than 13%, though prices cooled off on Wednesday. The current price of about $81 a barrel marks the highest level since last June, but it stands well below a three-year high of $94 a barrel.
The ballooning oil costs trace in large part to a narrow but crucial waterway along the southern coast of Iran: the Strait of Hormuz. The strait facilitates the transport of about one-fifth of the global supply of crude oil and liquid natural gas.
A commander in Iran’s Islamic Revolutionary Guard Corps said late Monday that the Strait of Hormuz had been closed, according to remarks made on Iranian State TV. A day earlier, tanker traffic through the strait had already slowed dramatically, according to an analysis of shipping data issued by S&P Global.
Since oil is sold on a global market, a significant shortage in any given region can result in major price hikes worldwide, including the U.S., some economists said.
“Any threat to vessel safety in the Strait of Hormuz immediately raises the risk of a system-wide energy shock,” Gregory Daco, chief economist at EY-Parthenon, told ABC News in a statement on Tuesday.
Mark Schiefelbein/AP – PHOTO: President Donald Trump speaks during a meeting with German Chancellor Friedrich Merz in the Oval Office at the White House, March 3, 2026, in Washington.
In a post on social media on Tuesday, President Donald Trump ordered the federal government to provide “political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf.”
“If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump added.
Speaking at the Oval Office earlier in the day, Trump acknowledged the recent rise in oil prices as a result of the war with Iran. Still, he downplayed the risk of a long-term spike.
“As soon as this ends, those prices are going to drop,” Trump said.
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Upward pressure on prices
The significant jump in oil costs over recent days threatens to accelerate price increases for a range of goods such as gasoline and groceries, some economists said.
Gas prices in the United States on Monday experienced their largest single-day increase since March 2022, just weeks after the Russian invasion of Ukraine, said Patrick De Haan, a petroleum analyst at GasBuddy.
After jumping for a second consecutive day on Tuesday, U.S. gas prices reached their highest level since September, AAA data showed.
The oil-led price hike will hit drivers at the tank but also extend to far-flung corners of the economy, Zandi said.
“Everyone fills their gasoline tank once or twice a week – they’ll be paying more,” Zandi said. “It’ll cost more to get an airline ticket because airlines will be paying more for jet fuel. It’ll cost more for groceries because they’re shipped by truck and grocery store costs will go up.”
For every $10 increase in the cost of oil, the overall U.S. inflation rate is expected to rise 0.15%, Zandi said.
Inflation stands at 2.4% — its lowest level since May, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index. Still, the pace of price increases remains nearly a half-percentage point higher than the Fed’s target rate of 2%.
A potential drag on economic growth
The Iran war risks a slowdown of U.S. economic growth since potentially elevated prices could weigh on consumers and businesses, while the Federal Reserve may take a cautious approach to lowering interest rates.
Why unrest in the Strait of Hormuz is leading to rising oil and gasoline prices
Last month, a government report on gross domestic product (GDP) showed the economy grew at a tepid annualized pace of 1.4% over the final three months of 2025.
That reading marked a sharp slowdown from strong annualized growth of 4.4% recorded in the previous quarter, U.S. Commerce Department data showed.
Before the Iran war, EY-Parthenon’s Daco forecasted solid U.S growth of 2.4% in 2026. A short-lived conflict would slightly reduce economic growth this year, while a longer-lasting escalation would shrink the anticipated expansion by more than half, Daco said in a statement on Tuesday.
The potential combination of higher inflation and slower growth would also pose a challenge for the Fed, putting pressure on both sides of its dual mandate to manage prices and maintain maximum employment, Zandi said.
If the Fed opts to lower borrowing costs, it could spur growth but risk higher inflation. On the other hand, the choice to raise interest rates may slow price increases but risks a cooldown of economic performance.
“Given the Fed is already clearly focused on inflation, this war would make it less likely they would cut rates further,” Zandi said. “At some point, if the growth effects start to take hold and they change their focus to job and unemployment, they might have to start cutting rates. That’s the conundrum.”
“This is a very uncertain time,” Zandi added.