The U.S.-Israeli attacks on Iran set off one of the worst global oil shocks in decades, prompting gloomy forecasts in recent days about the heightened risk of a U.S. recession.
Goldman Sachs raised its probability of a recession in the next 12 months from 25% to 30%, while Moody’s Analytics pegged U.S. recession odds at just below 50%. EY Parthenon put the risk of a recession over the next year at 40%, but it warned that those odds “could rapidly rise” if the Middle East conflict worsens.
A prolonged oil shortage could drive up prices for a vast array of goods, sapping energy from consumer spending, which powers most of the nation’s economic growth, some economists told ABC News. Inflation may also push the Federal Reserve to raise interest rates, they added, tipping the U.S. closer to a downturn.
Still, experts cautioned that the outcome remains highly uncertain, since questions abound regarding the severity and duration of the Iran war.
Mark Blyth, a professor of political economy at Brown University, called the war a “real gut punch” for the U.S. economy.
“If things become too expensive, people stop buying them and that hurts growth,” he added.
The link between the Iran war and the U.S. economy stems from oil and gasoline prices, which in turn threaten steep increases in prices paid by shoppers and costs borne by businesses, some economists said.
Iran has mounted a near-closure of the Strait of Hormuz, a critical maritime trading route along the coast of Iran that facilitates the transport of about one-fifth of the global oil supply.
The U.S. is a net exporter of petroleum, meaning the country produces more oil than it consumes. But since oil prices are set on a global market, U.S. prices move in response to swings in worldwide supply and demand.
The disruption in oil shipping has pushed global crude prices above $112 a barrel, which marks a staggering rise of nearly 60% since the war began on Feb. 28.
The average price of a gallon of gasoline stands at $3.99, jumping $1.01 over the past month, according to AAA data.
“Gasoline is a necessity – you have to get to work and pick the kids up from school. If the price of one thing goes up, people will cut back somewhere else. That can have ripple effects,” Claudia Sahm, chief economist at New Century Advisors and a former Fed official, told ABC News.
