Depending on the part of the country you live in, gasoline prices are up around 60 percent from their level on February 27, 2026, the day before American advanced military operations in Iran.
The military incursion has led to disruptions and blockades involving the Strait of Hormuz, first by Iran and then by the United States. The current stalemate has the usual trappings of a cease-fire and the attendant violations. Estimates of the cost of the venture vary from $25 billion by the Department of Defense to $150 billion by others industry experts. Significant military resources were reportedly consumed in less than a month. Lower inventory level of missiles and ammunition makes the ability of the US to respond to another theater of conflict problematic. Keeping ships and soldiers in the Middle East costs $2-3 billion per day. The administration has asked for a $200 Billion supplemental appropriations bill to be passed by Congress to fund the war until September 30, when a larger Defense budget will be part of the government’s new fiscal year.
The $200 Billion will continue funding a war that the White House says is not a war. The administration has provided limited public explanation regarding the original incursion and its continuation. The closest explanation is to deny Iran the means of enriching uranium so that it becomes nuclear material. Yet Iran already has the technology and the means to do so. Even if the United States were able to secure Iran’s enriched uranium, there is no guarantee they could not obtain more uranium and start over. Last year, the United States stated that strikes had significantly impaired Iran’s nuclear capabilities. Either the original reports of success were inflated or repairing matters takes less time than we realize.
Even if the US makes bombing Iran an annual event, the risk of continued regional instability remains elevated. Iran is a country of over 93 million people. Half are under 30. Unemployment reportedly remains elevated.. Few are Ayatollahs, and the power of the Republican Guards to, say, cut off internet with the outside world stems from loyalty to the regime. The Guards total less than 150,000. The regular Iranian army has perhaps 5-7 times this number but is not considered sufficiently loyal to the leadership to be trusted. Then there is the matter of the average Iranian having limited means to resist the regime, stage a coup, or defend themselves.
Three things about enriched uranium. First, it gets less stable the more it is refined. Second, the current level of Iranian enrichment is sufficient to build a so called “dirty bomb” which can be transported by suitcase to any area of dense population. Think Times Square on New Year’s Eve. Finally, uranium can be purchased on the international black markets. This being the case, changing the perceptions of Iranians, both ours and theirs, may be the more sensible path to resolving this situation than military options.
US/Iran negotiations hold two contradicting views. In order to negotiate, one has to believe that the person on the opposite side of the table is capable of such. Thus, if Iran is this out-of-control theocracy, it cannot be trusted to negotiate. If not, they can negotiate, assuming they are in some way be capable of representing the Iranian people. Long-term geopolitical change may ultimately depend more on economic and cultural influence than military action.
The blockade can go on for longer than anyone now foresees, with a devastating effect on oil prices and the world economy. Both sides face significant political and strategic pressure that may make compromise difficult. Iran also maintains important strategic relationships with countries such as China and Russia. Perhaps things will begin to evolve in non-public ways.
If matters do not evolve, look for a long summer in the developed world and serious consequences in the developing world. Crude is expected, short of a “deal,” to top out at $150-200 per barrel this summer. That would peg gas prices at about another 40 percent higher than they are now. Aside from cost is availability. The ability to get refined oil products in a timely manner will be called into question, especially for diesel and jet fuel. Higher fuel prices could increase interest in electric vehicles and alternative energy sources.
The Economy
Economic activity continues to be bifurcated. The top ten percent of households account for half of the consumer spending to date. Upper end goods continue to sell, while budget items are not moving. This is different from earlier markets, when pinched consumers traded down for less expensive items. It seems that the upper tenth is almost unaffected by the current inflation, while many of the lower 90 percent have no economic reserves to speak of.
Wealthy retirees, especially the newer retired, continue to impact spending disproportionately. Cruises, travel, and other discretionary spending among wealthier retirees have remained relatively resilient despite the economic cycle. Also, an ever-greater number of real estate transactions are made by the recently retired. Whether it be downsizing or finding another venue to live, the over 65 group are leaving their mark on the real estate markets that many younger buyers are priced out of.
Inflation
One effect of the Middle East conflict is the return of the US Dollar as the world’s currency to be in during a crisis. This has led to some Dollar strength as exchange rates have risen against major currencies. Historically dollar strength has been a damper on inflation, but not now.
Ongoing income erosion among the working class threatens to disrupt wage negotiations going forward. We may be seeing workers negotiating assuming ongoing accelerating inflation. This has not been witnessed on a broad scale since the late 1970s.
Interest Rates
The inflation acceleration occurred when the US Government debt last Friday hit over 5.13 percent for a thirty-year bond and 4.6 percent for a ten-year obligation. The ten-year period is of special significance as it is the rate that most mortgage lenders refer to when setting their rates.
These higher government interest rates, aided by deficit government spending and higher oil prices, could help keep inflation elevated for the near future. It has been noted that government debt has now exceeded the total of all economic activity in the US–the Gross Domestic Product (GDP). Some see this passage as a sign of future instability. Given that there is no real effort by either party to reign in government spending, sooner or later the perception will be a valid one.
The Stock Market
In the past ten days or so, the stock market has blown past comparisons to prior speculative periods, including the dot com bubble era. Some analysts have compared it to earlier speculative market periods such as the Tulip Mania of the 1700s in Holland.
The obsession with semiconductor stocks has now engulfed South Korea and Japan. South Korea, after being down 3 percent on Friday, is still up 78 percent year to date. Like the US market, the AI and semiconductor stocks in several markets have significantly outperformed broader indexes.
A recent research piece on Nvidia predicted that the firm’s earnings will grow 55 percent over the next five years. This is a bit more than 15 percent per year. This is not a lot for a stock currently selling for 27 times earnings. Maybe there is more to this than can be seen. Or a good bit less.
Warren M. Barnett, CFA
May 21, 2026
Disclosures
Barnett & Company provides comprehensive financial planning and investment management services tailored to individual client objectives. Services may include portfolio management, retirement planning, and coordination of estate and financial strategies based on each client’s unique circumstances. Clients interested in learning more about the firm’s services may visit barnettandcompany.com or contact Jessica Bingham at 423-756-0125 for additional information.
Barnett & Company is a fee-only investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. The information contained herein is provided for general informational purposes only and should not be construed as personalized investment advice, a recommendation, or an offer to buy or sell any security or adopt any investment strategy. Any opinions or forward-looking statements reflect current views as of the date of publication and are subject to change without notice. Such statements are based on assumptions and expectations that may not be realized, and actual results may differ materially. There can be no assurance that any investment strategy will achieve its intended objectives. Investing involves risk, including the possible loss of principal. Past performance, if referenced, is not indicative of future results. Certain information may be derived from third-party sources believed to be reliable; however, Barnett & Company does not guarantee the accuracy or completeness of such information. This material is not intended to address the specific investment objectives, financial situation, or particular needs of any individual. Readers should consult their own financial, tax, or legal advisers before making any investment decisions.
Market and geopolitical commentary reflect the subjective views and opinions of the author as of the date presented and should not be interpreted as statements of fact, guarantees, or predictions of future events.
For additional information about Barnett & Company’s services, fees, and conflicts of interest, please review the firm’s Form ADV Part 2A, available upon request or at www.adviserinfo.sec.gov. Receipt of this material or contact with the firm does not create an advisory relationship. Barnett & Company reserves the right to modify its investment approach, strategies, and views at any time without notice.