Regardless of whether the conflict in Iran wraps up in the next couple of weeks or it drags on for months, it seems like global markets might be unsettled for quite a while.
Since President Trump initiated Operation Epic Fury on February 28, Iranian responses have effectively blocked the Strait of Hormuz. This situation has nearly brought international oil trade to a standstill, and with the Pentagon pouring tens of billions into military efforts, American consumers are feeling the pressure.
“In my opinion, we’ve likely seen the last days in my lifetime of gas prices below $3 a gallon and oil costing less than $80 per barrel,” energy expert David Blackmon remarked. It seems things have really shifted.
Lower oil availability is going to make essentials like gasoline, food, and fertilizer pricier. When the government spends more, deficit increases can lead to rising interest rates, pushing up mortgage and car loan costs as well. Even if peace returns right away, we might be looking at a lengthy rehabilitation period for global markets.
All about oil
Gas prices in the U.S. are closely tied to Brent crude oil prices, which serve as a global benchmark. For every $10 that Brent jumps, American gas prices typically rise about 24 cents per gallon. Following the conflict with Iran, the national average for gas shifted from $2.98 to $4.11. Unforeseen supply limitations usually drive up Brent prices, reminiscent of the spike after Russian exports declined post-2022 Ukraine war.
While some vessels are still navigating the waters, the maritime traffic disruptions are evident. The global market isn’t prepared for this impending supply crisis, as essential buffers are running low and damaged infrastructure complicates quick recovery.
“The floating storage—about 400 million barrels on ships prior to February 28—has nearly run out. Rebuilding that buffer will take months,” Blackmon explained. “The Middle East’s oil infrastructure has sustained significant damage, and repairing it will be a lengthy task. The depletion of national reserves is also part of ongoing international efforts, making recovery a slow process.”
Even if these supplies were restored, it’s unlikely that we’d see a return to the pre-conflict status quo.
“Without this cushion, volatility in oil prices is unavoidable, causing a rise in market prices regardless of supply-demand balance,” Blackmon mentioned. “If the war were to end today, we likely wouldn’t see market stabilization before 2027. That’s the pressing concern.”
Dr. EJ Antoni, chief economist at the Heritage Foundation, mirrored these sentiments, highlighting the urgency many refineries feel to secure crude supplies.
With brackets, current oil prices are soaring compared to future projections, typically due to supply shortages. Brent is hovering around $110 per barrel, while futures trade at approximately $87.
“Current oil market data signals a significant supply shortage,” Antoni noted.
The American Enterprise Institute has analyzed the economic implications of the Iran conflict, estimating a spike in household spending linked to ongoing gas price trends.
“Through April 1, gasoline expenses have cumulatively reached about $6.7 billion or approximately $50 per household,” AEI Senior Fellow Roger Pilke stated. “If current gas rates persist, we could see costs balloon to about $300 per household by June and about $550 by September.”
Diesel has also surged over 45% since late February, reaching $5.65 per gallon, according to AAA. Although most American households don’t have diesel vehicles, they are impacted by the rising cost.
“While diesel isn’t typically a consumer fuel, every American household indirectly consumes it because all goods delivered—groceries, furniture, etc.—are transported via diesel-powered trucks,” Pirke explained.
Grocery stores being squeezed for cash
Thanks to pre-existing contracts and stockpiles, grocery prices won’t spike immediately due to fuel costs. However, these rising costs will eventually infiltrate grocery aisles, affecting not just gasoline prices but other aspects of consumer spending, too.
“Energy influences the price of just about everything, so it’s reasonable to expect prices across the board to rise in the coming months,” Antoni commented. “Fertilizers, which derive from energy sources, are likely to see substantial price increases, meaning food prices will follow suit later this year. This is a stark example of the war’s delayed aftereffects.”
Nearly one-third of global fertilizers are sourced from the Gulf, passing through the critical Strait of Hormuz. Many types are sourced from Iran and neighboring Gulf states, known for their abundance and affordability.
“This long-term supply disruption will have significant impacts on essential goods worldwide. For instance, Indian fertilizer plants are closing due to material shortages, and farmers in the Philippines are skipping harvests due to high fuel prices,” Blackmon outlined. “Stories like this will emerge in various forms globally, stemming from the Hormuz situation.”
AEI’s analysis also anticipates farmers facing added fertilizer expenses, potentially reaching $1.3 billion by September.
In light of the timing for food price impacts, Blackmon explained, “It generally takes a few weeks for higher fuel prices to translate into retail grocery increases, but we’re already observing wholesale price hikes that will eventually affect consumers.”
It’s more than just fuel costs pushing up American household budgets. Increased government spending could lead to rising mortgage interest rates, as well.
Interest rate at risk
The Pentagon is reportedly requesting an additional $200 billion for the Iran war. The conflict is already costing the federal government around $900 million a day, as noted by the Center for Strategic and International Studies.
“This substantial financial request would elevate the demand for loans, leading to higher interest rates across various loans—from credit cards to mortgages,” Antoni explained. “With the ongoing uncertainty regarding the war’s duration, it’s hard to quantify total costs, but they will likely total in the billions.”
When government expenditures exceed tax revenues, it resorts to selling U.S. Treasuries, thereby increasing the demand for loans and driving up mortgage competition, resulting in higher borrowing costs.
“Increased government spending invariably raises the budget deficit, which can further exert pressure on interest rates. If war expenditures continue, this upward trend will likely persist,” noted Dr. Wayne Winegarden, a senior fellow at the Pacific Institute.
“With bond rates climbing, mortgage rates will also increase, complicating housing market conditions,” Winegarden added, highlighting a challenging political landscape ahead of upcoming elections.
“The uncertainty surrounding the war and its effects on energy infrastructure complicates our understanding of the economic strain on average American families,” Antoni concluded. “This uncertainty is compounded by how many price hikes are already factored into the current market.”
Energy expert David Blackmon suggests that American families will likely be burdened with higher costs in the foreseeable future: “Honestly, I doubt the oil market will return to its pre-February levels.”
