Inflation risks rise again before U.S. midterm elections, industry: Iran war may erode Republican support

# Iran Crisis Drives Oil Surge, Threatens U.S. Economy and Trump’s Political Fortunes

By He Hao | Wall Street CN

The escalating crisis in Iran has sent oil prices soaring, and gasoline prices have historically played an outsized role in shaping Americans’ perceptions of the economy. Analysts say the duration of the conflict will determine the extent to which oil and gas shipments from Gulf producers are disrupted—and, in turn, how much Americans pay at the pump. Recent polls show a majority of Americans already disapprove of Trump’s handling of the economy and his signature policies, such as tariffs.

Media analysis warns that the latest Middle East conflict could deliver another blow to an already unpopular U.S. economy, with just eight months remaining until the U.S. midterm elections.

For the American public, the most immediate impact will likely be higher gasoline prices. On Monday afternoon, crude oil prices in New York rose roughly 8%. Just days before the U.S. and Israeli strikes, Trump boasted in his State of the Union address that he had brought down oil prices—a bright spot for U.S. consumers who had endured multiple rounds of price hikes since the pandemic. Last week in Congress, Trump called oil prices under his predecessor “a disaster”.

Gasoline prices have long been a powerful force in shaping how Americans feel about the economy. With roughly one-fifth of the world’s seaborne oil and gas typically passing through the Strait of Hormuz, which Iran controls, Middle East tensions have an outsized impact on oil prices. Since the conflict erupted Saturday, tanker traffic has plummeted.

Industry insiders predict that if shipments do not resume, crude prices could settle above $100 per barrel. At that level, the national average U.S. gasoline price could jump from around $3 per gallon today to roughly $4.50. That alone could push headline inflation up by 1.5 percentage points, with ripple effects through airfares and transportation costs.

Thanks to a massive surge in domestic crude production, the U.S. has become a net energy exporter, making it less vulnerable to oil shocks than in the past. Modest price swings have a relatively limited impact on the overall economy, though distributional effects remain pronounced.

Some analysts note that while the U.S. may have achieved energy independence, higher prices still squeeze consumption—and income flowing to energy producers does not immediately translate into spending. Rising energy prices stoke inflation, and the strain on household finances could weigh on growth. Others argue that America’s status as a net energy exporter could unexpectedly boost GDP, and the initial market reaction does not yet constitute a “material risk to U.S. growth or inflation prospects.”

The U.S. economy has shown resilience amid Trump’s tariff policies and immigration crackdowns. The economic impact of the war hinges on how long the conflict lasts. Trump said Monday that the U.S. expects the bombing campaign to continue for four to five weeks, but is prepared to extend it “for as long as necessary.” U.S. Defense Secretary Hegseth denied this would become the kind of “endless war” Trump has opposed, saying, “This is not Iraq. This will not be an endless war.”

The conflict’s duration will determine how badly oil and gas shipments from Gulf producers are disrupted—and thus how much Americans pay for gasoline. A prolonged conflict carries broader risks, including a new round of supply-chain problems.

Economists caution it is too early to judge how the campaign for regime change in Iran will affect energy markets.

Recent polls show a majority of Americans already disapprove of Trump’s handling of the economy and his signature policies, such as tariffs—a stark contrast to 2024, when he won office riding voter anger over inflation.

Analysts are assessing what could happen if the conflict drags on, widens, or causes greater disruptions:

Economists at the French investment bank Natixis outlined in a Sunday report one scenario in which U.S. economic growth slows to 0.5%–1.5% this year while inflation rises; another scenario envisions the economy contracting for at least two consecutive quarters. The worst case is based on a wider war that disrupts global shipping, squeezing corporate profit margins through higher costs and logistical bottlenecks.

Former PIMCO chief Mohamed El-Erian warned that soaring insurance premiums, ships turning back or rerouting, and disruptions to air transport could combine to create “a new stagflationary shock sweeping the global economy”.

Additionally, the war has pushed U.S. stock markets lower. A rising stock market had previously supported consumer spending, so this decline could hurt U.S. economic growth.

Assessing the impact on monetary policy is even more complex. The Middle East conflict presents the Federal Reserve with a fresh dilemma. The Fed has paused rate cuts and is on guard against a resurgence in inflation. Former U.S. Treasury Secretary and ex-Fed Chair Janet Yellen said Monday that the crisis makes the Fed even more inclined to stay on hold and less willing to cut rates.

Indeed, even before the Middle East crisis erupted, recent price data had raised Fed concerns. Minutes from the Fed’s January policy meeting showed some officials even thought rate hikes might be needed if inflation remains stubbornly high. Media analysis notes that for the Fed to shift policy, we would need to see a significant and sustained impact on oil prices from the Iran war, leading to unanchored U.S. inflation expectations. Both are possible—but neither is guaranteed.

All of this—and the potential political cost for Trump’s Republican Party in November—hinges on how the war unfolds.

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