The “fog of war” describes battlefield confusion and the risk of fatal mistakes. There is a similar fog when wars have economic consequences, especially in a region that is a chokepoint for roughly one-fifth of the world’s oil and a third of its natural gas.
No one yet knows how far the ripple effects of the US‑Israeli strikes on Iran will reach, but warnings from energy exporters underline the danger. On March 6, 2026, Qatar’s energy minister warned the conflict “will bring down the economies of the world.” Markets have already reacted: oil briefly spiked toward $120 a barrel in early March after the strikes began, and US data published March 6 showed an unexpected loss of jobs in February.
The biggest economic risks are higher inflation and slower growth driven by rising oil prices. Uncertainty from the conflict — an “economic fog of war” — could also make consumers pull back from spending and cause businesses to delay hiring and investment, complicating policy responses.
Uncertainty and risks
Major unknowns remain: how long the conflict will last, which countries will become involved and what the fiscal and material costs will be. These factors will shape the damage to the US and global economies.
Disruptions to oil and liquefied natural gas (LNG) supplies are virtually certain. Much of Middle Eastern oil and LNG flows through the Strait of Hormuz, and the threat of attacks has made passage difficult to insure, effectively halting tanker traffic in the area. As of March 9, crude was trading under $90 a barrel after peaking near $118 a day earlier — up from about $67 before the strikes began — driving gasoline prices higher across the US.
The military campaign is also costly for the United States. Early estimates put the conflict’s daily cost at nearly $1 billion, and losses of aircraft and munitions have depleted US stockpiles.
Managing a supply shock
Large oil shocks raise the specter of stagflation — a combination of stagnant growth and high inflation — as happened after the 1979 Iranian Revolution. Today’s economies are less dependent on oil than in the late 1970s, and the United States did not enter this period with a recent decade of elevated inflation expectations, factors that make a direct repeat less likely.
Still, supply shocks are hard to manage, as policy responses to COVID‑19 showed. Policymakers face difficult trade‑offs: raise interest rates to fight inflation, which can suppress growth and raise unemployment, or lower rates to support the economy, risking higher inflation.
Historical responses varied. In the late 1970s and early 1980s, the Fed ultimately fought entrenched inflation with much higher rates, precipitating a deep recession. After the pandemic, inflation was brought down without an equally severe downturn in part because long‑standing low inflation had kept expectations well anchored.
Trade‑offs for policymakers
The Federal Reserve’s credibility matters for inflation expectations. Recent political pressures on the Fed — including public attacks on Chair Jerome Powell, legal actions involving board members and the prospect of leadership changes perceived as favoring easier policy — risk weakening that credibility. If markets and the public begin to doubt the Fed’s independence or resolve, concerns about future inflation can become self‑fulfilling.
Other domestic headwinds are also present: tariff policies, cuts to government employment, rising federal debt and financial vulnerabilities in equity markets are weighing on the economy. A sustained oil price spike could push consumer and business behavior toward retrenchment and potentially tip a fragile economy into recession.
Conclusion
The Iran conflict has introduced a potent mix of inflationary pressure, supply disruption and policy uncertainty. How policymakers respond — and how long the conflict endures or expands — will determine whether the US weathers higher energy costs with only slower growth, or slides into a deeper downturn.
This article was updated on March 9 with the price of oil.
Michael Klein is professor of international economic affairs at The Fletcher School, Tufts University.
This article is republished from The Conversation under a Creative Commons
