US Faces Recession Risk if War Pushes Oil Prices Beyond This Level
US Faces Recession Risk if War Pushes Oil Prices Beyond This Level
Jakarta, CNBC Indonesia - Economists assess that the United States is not yet on the brink of recession even if the war in Iran continues and triggers major disruptions to global oil supplies. This is expected to drive a surge in energy prices as well as other commodities.
This consensus emerged from a survey of 50 economists conducted from 16-18 March by The Wall Street Journal, including respondents from Wall Street banks, universities, and consulting firms.
The majority of economists predict that the primary impact of a oil price surge would be a temporary rise in inflation, while economic growth and unemployment rates would remain relatively unchanged, provided the energy shock does not persist for long.
Bernard Baumohl from the Economic Outlook Group stated that the US economy’s resilience so far has been impressive amid pressures from the war in the Middle East, soaring oil prices, high tariffs, artificial intelligence developments, and immigration restrictions.
“However, we must not take this resilience for granted,” he said, quoted from the WSJ on Friday (20/3/2026).
In the survey, the probability of a recession in the next 12 months was estimated at 32%, a slight increase from 27% in January. When asked at what oil price level the recession risk could exceed 50%, economists provided varied responses ranging from US$90 to US$200 per barrel, with an average of US$138. Meanwhile, the required duration of high prices also varied between four and 55 weeks, with an average of around 14 weeks.
US oil prices closed at US$96.32 per barrel on Wednesday, well above the February average of around US$65. Robert Fry from Robert Fry Economics even considers the critical point to be if prices reach US$125 per barrel for eight weeks. He added that his projection heavily depends on whether the Strait of Hormuz can fully reopen to tanker traffic by mid-April.
“If not, oil prices will be much higher, and I will include a recession in my forecast,” said Robert.
On average, economists forecast that US real gross domestic product (GDP) will grow by 2.1% in Q4-2026 compared to the previous year, slightly down from the January projection of 2.2%. The unemployment rate is expected to be at 4.5% in December, the same as the previous projection, compared to 4.4% last month.
Unlike growth, the outlook for inflation has become more pessimistic. The consumer price index is projected to rise 2.9% in December 2026 compared to the previous year, higher than the January projection of 2.6%.
This increase is not solely driven by petrol prices, as the core personal consumption expenditures (PCE) price index, which excludes food and energy components, is also expected to rise 2.8%, compared to the previous projection of 2.6%. This indicator is the Federal Reserve’s primary benchmark for its inflation target.
As inflation pressures mount, expectations for interest rate cuts have diminished. The Federal Reserve on Wednesday maintained rates in the range of 3.5% to 3.75%. Economists project rates will be around 3.26% by year-end, implying only one or two 25 basis point cuts. Previously in January, they had forecast 3.08%, reflecting two cuts.
This projection now aligns more closely with the views of Fed officials, who anticipate only one rate cut this year. Nevertheless, Fed Chair Jerome Powell emphasised that the projection carries a high degree of uncertainty due to war developments.
“So people are writing down something that seems reasonable to them but without conviction,” said Powell.
Similar uncertainty was expressed by many economists. Beth Ann Bovino from U.S. Bank noted that her projection was prepared just as the war began and conditions could change at any moment.
Around 20 million barrels of oil, or about 20% of global supply, typically pass through the Strait of Hormuz each day. However, this volume has now dropped dramatically, causing oil prices to briefly exceed US$100 per barrel. Retail petrol prices in the US averaged US$3.84 per gallon on Wednesday, up from US$2.92 a month earlier, according to AAA. Meanwhile, petrol futures contracts indicate prices could surpass US$4 in the coming weeks.
Nevertheless, economists forecast that oil prices will fall to US$86.70 in June and end the year around US$73.54. Economists from California Lutheran University stated that the US’s position as the world’s largest oil producer since 2018 means prices in the US$80 to US$100 per barrel range are not entirely negative for the economy. They also reminded that in 2008, WTI oil prices reached the equivalent of US$200 per barrel in today’s values.