America is lucky it’s no longer a manufacturing powerhouse—it’s what’s protecting the U.S. economy from the worst of the oil shock, top economist says

Americans are reeling from the effects of the Iran war—now entering its ninth week—in which the chokehold on the Strait of Hormuz has effectively stopped the flow of more than 20% of the world’s energy supply and has sent countries globally scrambling to find alternatives. In the U.S., average gas prices exceed $4.45—some even touch $6 in other parts of the country—the highest levels since 2022. March saw the biggest jump in core inflation, 0.7%, in three years amid rising oil prices. Produce staples like tomatoes, bananas, and yellow onions have already gotten more expensive since the war began, and as a result of increasing fertilizer prices, food costs are expected to continue rising as farmers struggle to afford critical chemicals traded through the strait.

But despite all this, one economist argues it could be much worse.

Eswar Prasad, senior professor of trade policy and economics at Cornell University, said Americans can thank the U.S. losing its manufacturing influence (and instead shifting toward a service-oriented economy) as the major reason why it relies less on oil than it did half a century ago.

“The increase in prices that we are seeing at the gasoline pump, for instance, are very visible manifestations of the increase in oil prices,” Prasad told Fortune. “But the overall disruptive effect of the economy is limited by the fact that the U.S. is not the manufacturing powerhouse it once used to be.”

The U.S. has avoided the magnitude of other countries’ woes in the weeks following the war with Iran, which rocked the world’s energy supply chains. Pakistan, Indonesia, and the Philippines are counting down the days until they reach a critical oil shortage.........

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