CounterPunch Exclusives

CounterPunch Exclusives

Some Economic Consequences of the Iran War

Photograph by Nathaniel St. Clair

As the US-Israel war on Iran enters its third week, the outlines of the economic consequences and fallout of the war have begun to emerge. As the war continues—and by most indicators it appears it will for months longer—the War’s negative impact on the US and world economies will deepen further.

What are some of the economic dimensions for the war’s negative consequences?

First and most obvious is the current oil price shock’s effect on inflation. Not just for US prices, but other countries as well. And not just for goods and services but for asset prices (i.e. stocks, bonds, forex, derivatives, gold, silver, etc.).

Another is the long-term disruption of global supply chains and the volume of global trade.

As inflation rises, central banks, led by the US Federal Reserve, will continue to raise interest rates with a corresponding negative impact on the US and other economies, many of which are already nearly stagnant or are beginning to enter recession. Most heavily impacted will be Europe, the Gulf States, and Middle East energy-dependent countries in East Asia like Japan and South Korea.

Another negative impact will be on global money capital flows—both real investment and financial portfolio asset markets (stocks, bonds, forex, derivatives, etc.).

Then there’s the US budget deficit and national debt. The deficit will now approach $2 trillion a year, for the third straight year. That deficit will drive the national debt to exceed $39 trillion by later this spring and possibly $40 trillion by year end.

The Iran war and its costs converge with a host of other forces driving the deficit and the debt into ever greater crisis: Trump’s escalating war spending (including his plan for $400 billion more for just the Pentagon), the current sharply slowing US real economy (that grew at a mere 0.7% rate in fourth quarter 2025), the present collapse of employment and job creation now underway in the US and Trump’s massive 2025 $5 trillion tax cuts benefiting mostly investors and corporations at the expense of US Treasury tax revenues which is estimated to reduce corporate income tax revenues by $77 billion in 2026.

Not least, the war will accelerate the current fiscal crisis of the American Empire. The costs of Empire now exceed $2.2 trillion a year when all categories of ‘defense’ in the US budget are considered, not just the Pentagon and the US Department of Defense—the latter alone which now exceeds $1.1 trillion a year.

Trump’s war in Iran will exacerbate all these negative economic trends, US and global; and the longer the war continues—which by all indicators it will—the worse the negative economic consequences.

Putting some numbers and facts around the above trends, the picture now beginning to appear in terms of economic consequences of the Iran war is as follows:

Throughout 2025 the price of global crude oil remained at around $60 a barrel. It began to rise in late January 2026 and hit $71 just before the war began Saturday, February 28. Prices initially spiked to $118 the following Monday, March 2, but then settled down below $100 the rest of the first week. On March 9 they were still $98. At the start of the second week, Trump tried to talk down the price by saying the war was “over soon”. His Energy Secretary then posted on the department’s website that US warships had begun escorting tankers through the Hormuz Strait. Oil prices quickly fell to $87. But when the facts revealed the war was not about to end in a week, and that there were no escorts, the Energy Secretary quickly took down the fake claim from the department’s website and oil prices rose again. By Thursday, March 12 they were $101. On March 15, $104. On Monday, March 16 the price of benchmark Brent crude oil hit $106. The price of crude oil will fluctuate day to day with events in the war in the short run but steadily rise over time.

At the retail gasoline level in the US, the Trump administration has continued to underreport the price of gasoline at the pump, after two weeks of war, claiming it has risen only 15 cents a gallon. In fact, the average was closer to 70 cents, according to other official estimates, and in regions like California, more than $1.50/gallon.

Strategic Petroleum Reserve Failure

Trump’s major policy response to address the crude oil supply shock has been to announce the release of 172 million barrels from the US Strategic Petroleum Reserve (SPR). After Biden’s SPR release in 2022, the reserve was never restored. Before Trump’s recent announcement, the SPR held only 412 million barrels or about 60% of its total capacity. That’s to be reduced now by another 172 million barrels. Europe, Japan and other countries have also announced inventory releases, for a global total of around 400 million barrels of extra crude supply for the global market. But neither the 172 or 400 million barrels will have much effect on global and US prices. Here’s why:

The shutdown of the Hormuz Strait results in a 20.3 million barrels a day reduction in total global oil supply, which is about 30% of all seaborne crude oil.

At 20.3 million barrels a day, 400 million additional barrels from the US SPR and global reserves provide for roughly 20 days additional supply to offset the closure of the straits. But 20 days assumes that 20 million barrels from the SPR and other inventories are released to the market immediately on day one. That cannot occur.  There’s a ‘flow rate’ limit of release from the........

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