Recession, Recession, Recession! Iran War Brings America to the Brink of Recession

Jakarta, CNBC Indonesia — The United States economy, which has proven resilient over recent years, now faces a new test: war in the Middle East.

The conflict between the US and Iran has triggered major disruptions to global oil supplies and surges in energy prices. This potentially threatens to shake the global economy.

The oil supply disruption is described as amongst the largest in history. The surge in oil prices has driven increases in costs across various sectors, from petrol and diesel to aircraft fuel.

Several economists have warned that this crisis increases the risk of recession in the US. This is particularly concerning given that the American economy already appeared fragile before the Middle East conflict intensified.

“The US economy has been on the brink of recession for quite some time,” said Justin Wolfers, economics professor at the University of Michigan, according to CNN International on Wednesday (11/3/2026). “It takes only one trigger to bring it down. Could oil be that trigger? Very likely,” he added.

Nevertheless, most economists still estimate that the US economy can avoid recession. The stock market has weakened, but not sufficiently to suggest that investors predict a major economic slowdown in the near term.

Should the conflict subside and oil shipping lanes in the Strait of Hormuz return to normal, oil prices are expected to decline towards pre-war levels. However, prediction markets show that recession risk has increased significantly.

Recession probability in the US this year spiked to approximately 35% when US oil prices touched around $119 per barrel earlier this week. By comparison, the probability stood at around 20% in early February.

Joe Brusuelas, Chief Economist for the US at RSM, stated that recession risk has indeed increased, but is not yet at a concerning stage.

“The US economy is a dynamic and resilient economic engine worth $30 trillion. There is still room to absorb shocks from rising oil prices,” he said.

Risks from Energy Price Surges

According to Brusuelas, recession risk will increase sharply if several key indicators are reached: oil prices rising to $125 per barrel, petrol prices reaching $4.25 per gallon, and inflation climbing back to around 4% annually.

Currently, petrol prices have risen by approximately 50 cents per gallon, from $2.98 before the war to around $3.48.

This rapid increase has shocked consumers.

“The speed of petrol price increases at the pump surprises consumers. However, much larger increases will be needed to trigger recession,” said Diane Swonk, Chief Economist at KPMG.

According to Moody’s Analytics, each $10 per barrel increase in oil prices that persists long-term is estimated to add approximately $450 annually to the burden of an average US household. The impact is significant because the American economy is heavily dependent on consumer spending.

Should consumers begin cutting back on shopping, travel, or dining out, businesses may cut costs by reducing their workforce. This could create a domino effect that ultimately triggers recession.

Labour Market Growing Fragile

The current US labour market is considered more vulnerable compared to when oil price surges occurred following Russia’s invasion of Ukraine in 2022. At that time, the US economy was still able to create hundreds of thousands of jobs monthly.

The situation is different now. Throughout 2025, the US economy added only approximately 116,000 jobs, the lowest figure outside of recession since 2002.

In fact, over the past nine months, the economy lost jobs in five months. The combination of job losses and rising petrol prices represents heavy pressure on the economy.

“This is a very bad double blow to the economy,” said David Kelly, Chief Global Strategist at JPMorgan Asset Management.

Nevertheless, Kelly still believes the US economy can weather this difficult period, particularly with potential increases in tax refunds for American families from the government’s latest fiscal policy.

Stock Market Risk

Another risk that could trigger recession is a sharp decline in the stock market. If the US stock index falls 20% from its peak, this could depress consumer spending, particularly among high-income earners who have been the main driver of consumption. Ed Yardeni, President of Yardeni Research, stated that oil prices do not need to surge dramatically to trigger negative impacts.

“If oil prices remain around $100 per barrel and pressure the stock market, the impact could be felt by high-income consumers,” he said.

Yardeni estimates that the probability of a “market crash” scenario accompanied by recession has risen from 5% to approximately 20%.

Business Confidence as a Determining Factor

Besides consumers and the stock market, recession can also be triggered by weakening business confidence.

Companies that were already hesitant to expand operations or recruit new employees could become even more cautious if energy prices continue rising and geopolitical uncertainty increases.

“The labour market conditions already show signs of weakening. If hiring slows further, only one more shock is needed to trigger bigger problems,” said Kelly.