The fog of war is used to describe battlefield confusion, but a similar haze can surround the economic fallout from conflicts. That risk is heightened when fighting occurs near strategic energy routes that carry a large share of the world’s oil and gas.
It is still unclear how far the economic ripple effects of the US‑Israeli strikes on Iran will go, but warnings from energy exporters and early market moves underscore the danger. In early March 2026, some officials cautioned that the disruption could severely damage global growth. Markets reacted: oil briefly rose toward $120 a barrel when the strikes began, and US data released on March 6 showed an unexpected loss of jobs in February.
The primary economic threats are higher inflation and slower growth driven by rising energy costs. Beyond direct price effects, the conflict creates an economic fog of war: uncertainty that may prompt consumers to cut spending and firms to postpone hiring and investment, amplifying the slowdown.
Key unknowns include how long the conflict lasts, which states become drawn in, and the fiscal and material costs. Those variables will determine the scale of damage to the US and world economies.
Disruption to oil and LNG supplies is a near certainty. Much of the region’s oil and liquefied natural gas transits the Strait of Hormuz; the risk of attacks has raised insurance costs and made tanker passage difficult, stalling traffic. Oil prices spiked from roughly $67 a barrel before the strikes to nearly $118 at the peak, then traded under $90 as of March 9, after a sharp decline. The initial jump already pushed gasoline prices higher across the United States.
The military campaign itself is expensive. Early estimates put US costs at roughly $1 billion per day, and losses of aircraft and munitions are depleting inventories.
Large energy shocks revive the specter of stagflation — weak growth with high inflation — as seen after the 1979 Iranian Revolution. Modern economies are less oil dependent than in the late 1970s, and long periods of low inflation before the recent runup have helped anchor expectations, making an outright repeat less likely. Still, supply shocks are difficult to manage.
Policymakers face hard tradeoffs. Raising interest rates to contain inflation risks suppressing growth and boosting unemployment; easing policy to support activity risks higher inflation. The Federal Reserve’s credibility in keeping inflation expectations anchored matters greatly. If markets and households doubt the Fed’s independence or resolve, inflation expectations could rise, making inflation harder to control.
Recent political pressures — public attacks on the Fed chair, legal disputes involving board members, and speculation about leadership changes perceived to favor easier policy — could weaken that credibility if they persist. Such doubts would complicate the Fed’s ability to respond effectively to a conflict‑driven supply shock.
Domestic headwinds already cloud the outlook: tariff changes, cuts in government employment, rising federal debt, and vulnerabilities in equity markets are all weighing on growth. A sustained jump in oil prices would likely intensify consumer and business retrenchment and could push an economy that is already fragile into recession.
How policymakers act, and how long or how much the conflict expands, will determine the outcome. A brief disruption might slow growth and lift inflation temporarily; a prolonged or widening war could produce a more severe downturn.
This article was updated on March 9 to reflect oil prices. Michael Klein is professor of international economic affairs at The Fletcher School, Tufts University. This piece was originally published by The Conversation under a Creative Commons license.
