Middle East Turmoil Shakes US Economic Stability

Escalation of the war between the United States, Israel and Iran is beginning to bite the US economy. The conflict is fuelling a surge in energy prices, risking higher inflation, eroding purchasing power, and complicating the central bank’s task of keeping stability. Washington and Tel Aviv’s strikes on Tehran, followed by Iran’s retaliation, have unsettled world oil markets. Disruption to energy supply, including the effective closure of the Hormuz Strait, pushed crude prices sharply higher. Brent crude briefly touched its highest level since July 2024. The rise in energy prices is expected to soon impact fuel costs in the United States, a politically sensitive issue. Oxford Economics’ chief analyst John Canavan said the impact will be felt in the near term. “Prices at the gas stations are likely to rise in a few days,” he said. He added that price trends at gasoline retailers had already been rising since early January. “Retailers usually respond quickly to geopolitical developments that could push prices higher,” he said. Higher energy costs are expected to burden American households, while suppressing consumption which has been the backbone of the economy. Consumer spending accounts for about two-thirds of US GDP, so the hit to this sector risks spilling over into transportation and logistics. ING economist James Knightley noted that rising energy prices can trigger higher airfares and distribution costs. Although the United States is relatively self-sufficient in natural gas, he emphasised that domestic prices remain influenced by global dynamics, so spikes in international prices can affect electricity tariffs. “This will undoubtedly be a critical turning point for the US economy,” Knightley said. He warned that if households have to devote more of their budgets to petrol and utilities, consumer finances will come under increasing pressure and could slow growth, especially if the conflict lasts more than a few weeks. The situation also poses a political challenge for US President Donald Trump. The administration is expected to seek to restrain energy price increases given their direct impact on public sentiment ahead of the elections. Nationwide Economist Kathy Bostjancic said the government understands that affordability of prices is a major concern for the public. “Higher petrol prices will undermine consumer confidence and sentiment. That could be felt at the ballot box in November,” she said. On the other hand, the conflict places the Federal Reserve in a difficult position. The risk of renewed inflation pushes the central bank to keep rates high, while a slowdown and possible weakness in the labour market could open room for monetary easing. New York Fed President John Williams said authorities still need to observe how long the conflict’s impact on prices lasts. “We have to wait and see,” he said. Knightley added that the near-term inflation risk makes a rate cut in the near term unlikely, even as economic pressure grows. He argued that the central bank must balance two opposing mandates: keeping inflation under control and ensuring an optimal level of employment. (AFP/E-4) Asia-Pacific stock indices fell amid the escalation of the US-Israel war with Iran. The closure of the Hormuz Strait has raised concerns about a global energy crisis. Tensions in the Middle East reached a new boiling point at the start of 2026. Diplomatic ties between Madrid and Washington hit a low in March 2026. The Chinese government condemned air strikes by the United States and Israel targeting public facilities in Iran, killing civilians. The Qatari government asserted that its country is not involved in the war against Iran but is exercising its right to defend its national sovereignty. A CNN SSRS poll showed a majority of respondents were satisfied with President Donald Trump’s State of the Union address, but questioned his ability to curb living costs. President Trump is due to deliver a State of the Union address amid falling public support and fears of defeat in November’s mid-term elections. Three former heads of the Fed, including Janet Yellen, condemned the criminal investigation into Jerome Powell. They said the actions of the Trump administration threaten the foundations of the US economy. A major October economic report is unlikely to be released due to a government shutdown, according to a senior White House official on Wednesday. By 20:30 local time on Monday (local time), more than 2,300 flights were cancelled on that day.