US economy faces a new test after years of resilience

After weathering several economic shocks in recent years, the United States economy is confronting another major challenge: a war-driven surge in oil prices.

For several years, the economy of the United States has demonstrated notable resilience. It managed to endure pandemic-era inflation, gasoline prices that once climbed to around $5 per gallon, a slowdown in hiring, and the Federal Reserve’s aggressive interest-rate campaign aimed at curbing inflation.

Now, however, the escalating conflict between the United States and Iran is creating a new economic shock. The war has triggered one of the largest disruptions to global oil supplies in modern history, pushing energy prices sharply higher.

The surge in crude prices is driving up the cost of gasoline, diesel, jet fuel and other petroleum products, raising concerns about the broader impact on economic growth.

Rising recession fears as oil prices spike

Economists warn that the prolonged disruption to global energy markets could significantly increase the likelihood of a recession, particularly if the conflict continues to interfere with oil flows.

Even before the escalation in the Middle East, some analysts believed the US economy was showing signs of fragility. Slower hiring, weaker job growth and lingering inflation pressures had already raised concerns about the strength of the recovery.

Despite the risks, many economists say a recession is not yet the most likely outcome. Financial markets, often viewed as an early indicator of economic sentiment, have declined but not sharply enough to suggest investors expect an imminent downturn.

Analysts note that if shipping through the Strait of Hormuz resumes quickly, oil prices could retreat toward levels seen before the conflict began.

Still, recession fears are growing. According to prediction market Kalshi, the probability of a US recession this year climbed to roughly 35 percent early Monday when oil prices briefly reached $119 per barrel.

That div marks a sharp increase from the roughly 20 percent probability estimated in early February, before Washington began building up military forces in the Middle East.

Higher gasoline prices threaten consumer spending

Rising fuel costs are already being felt by American households.

Average gasoline prices have jumped by around 50 cents per gallon, increasing from $2.98 before the conflict began to approximately $3.48 as of Monday.

According to Moody’s Analytics chief economist Mark Zandi, sustained increases in oil prices can quickly strain household finances.

He estimates that every $10 increase in crude oil prices adds roughly $450 in annual expenses for a typical US household.

This matters because the American economy depends heavily on consumer spending. If households begin cutting back on purchases such as travel, dining and retail shopping, businesses may see falling revenues and respond by reducing hiring or laying off workers.

Such a cycle could deepen economic weakness, potentially leading to a broader downturn.

Weak labor market adds to economic vulnerability

The current situation is particularly concerning because the US labor market is already weaker than it was during previous energy shocks.

When oil prices surged after Russia launched its invasion of Ukraine in 2022, employers were adding hundreds of thousands of jobs each month.

In contrast, job creation has slowed dramatically in recent years. The US added only about 116,000 jobs during all of 2025, the smallest annual increase outside of a recession since 2002.

The economy has also experienced job losses in five of the past nine months, a stark shift from the steady employment growth that characterized much of the post-pandemic recovery.

Economists warn that the combination of rising fuel costs and weakening employment could significantly weigh on economic momentum.

“The job losses and surging gas prices are ‘a very nasty one-two punch to the economy,’” said David Kelly. “But I still bet that the economy will muddle its way through this.”

Stock markets and business confidence under pressure

Another factor that could push the economy toward recession is a sharp decline in financial markets.

If US stocks were to fall by 20 percent from their recent peaks, the threshold commonly used to define a bear market, it could reduce household wealth and discourage consumer spending.

Wealthier households, which hold a large share of equities, account for a significant portion of overall economic activity. A sustained market downturn could therefore dampen spending across multiple sectors.

Business confidence is also at risk. Companies that were already cautious about hiring or investing may delay expansion plans if energy prices remain elevated and economic uncertainty increases.

Why this oil shock may be less damaging than past crises

Despite the risks, economists say several factors could help cushion the impact compared with previous oil crises.

One major difference is that the United States now produces more energy domestically than it did in earlier decades. The country has become a net exporter of energy, meaning higher prices can benefit parts of the economy, particularly oil and natural gas producers.

Another factor is geopolitical influence. During the 2022 energy crisis triggered by the war in Ukraine, Washington had little direct control over how quickly the conflict might end.

By contrast, the United States has greater influence over events in the Persian Gulf today.

Donald Trump recently suggested the conflict could already be nearing its conclusion, telling CBS News that the war is “very complete.”

His comments appeared to calm markets somewhat. After briefly surging to $119 per barrel late Sunday and early Monday, US oil prices later dropped to around $92 per barrel.

Energy independence could soften the blow

Another structural change in the US economy may help limit the damage.

Unlike in past decades, the United States is no longer heavily dependent on imported oil. Domestic energy production has increased significantly, making the country a net exporter of oil and natural gas.

While high fuel prices still strain household budgets, they also boost profits for American energy companies and investors tied to the fossil fuel sector.

As a result, economists say the overall economic impact of the current oil shock may be less severe than in earlier energy crises, though much will depend on how long the conflict and supply disruptions persist.