‘Warflation’ Will Hit More Than Just Gas Prices

The war in Iran may be on pause, but its effects on prices are still in motion and will continue to ripple through the economy after more than a month of disruption to the global oil supply.

After the U.S. and Israel began their attacks on Feb. 28, Iran responded by closing the Strait of Hormuz, a critical chokepoint for the world’s oil supply and other key materials. Brent crude — the global oil benchmark — traded at around $80 per barrel before the attacks but spiked to well above $100 per barrel as the war wore on.

The White House has been inconsistent in its messaging about the war’s aims and how long it might last, and has been trading rhetoric with Iran about how to end the conflict. Things came to a head this week as President Donald Trump set a Tuesday deadline for a ceasefire agreement — threatening to attack Iranian infrastructure and wipe out an entire “civilization” if no deal emerged.

On Tuesday night, less than two hours before Trump’s deadline, the two nations brokered a two-week ceasefire to allow for continued negotiations on a longer-term deal. Iran agreed to reopen the Strait of Hormuz during the pause, though the ceasefire is off to a tenuous start: On Wednesday, Iran accused the U.S. of violating the terms of the deal, as Israel continued attacks on Lebanon.

Following Tuesday night’s ceasefire announcement, oil prices fell quickly and have settled near $95 per barrel, and U.S. stocks rallied.

The war’s economic impact is compounded by the ripple effect of tariffs already in place before the war began. On March 2, just a few days after the initial attacks, the Yale Budget Lab released an updated assessment of tariff impacts on consumer prices, finding that costs of imported consumer goods passed onto consumers runs anywhere from roughly 40%-76% for “core goods” — like electronics and apparel — and 47%-106% for “durable goods” — like motor vehicles and household appliances.

Wells Fargo analysts cautioned in a March 23 report against over-extrapolating early data. “Early last April, the president’s proposed tariffs seemed to some a guarantee of an economic recession. That didn’t happen,” the note read. Analysts said that the crude oil price surge would likely produce global consumer price inflation, but noted that political and economic constraints will likely shorten the war’s duration. “While some risk remains for extensive structural damage to Persian Gulf energy infrastructure, we believe that both sides prefer not to destroy what generates almost all the region’s income,” analysts said in the note.

Meanwhile, the Organisation for Economic Co-operation and Development (OECD) says that the war in Iran will test the resilience of the global economy. A March 26 report by OECD projects that inflation in the U.S. will average 4.2% in 2026, reflecting higher energy prices due to oil market disruptions. A prolonged conflict in the Middle East could result in an even steeper price shock, it says.

If the ceasefire fails to hold and hostilities continue into June, oil has a 40% chance of hitting $200 per barrel, according to Macquarie Group, an investment banking firm. A spike of that size could push consumer prices even higher, roil markets and push an already fragile economy over the edge.

“My sense is if we hit $150 to $200 a barrel for a month or two, that’s very likely to tip the economy into recession,” says Daniil Manaenkov, a U.S. forecasting specialist and economist at the University of Michigan.