Most Americans are usually apolitical. As Bill Maher was recently quoting Neilsen data on his show, fewer than one percent of all Americans watch any of the three political networks (Fox, CNN or Ms Now) in a given month.
However, it does get them stirring if their cost of living gets ahead of their incomes. Given that gasoline has gone up about 40-50 percent in the past month, Americans are stirred up.
It is not for sure how much Americans are connecting the gasoline price increase to an “excursion” (the latest terms used to avoid the more common “war”) with Iran, half a world away from the US. To be sure, there will be additional fallout from this ongoing conflict as each side tries to find a target that will hopefully end the hostilities. Instead, the additional targets are simply escalating the war and bringing in others into its orbit.
At this writing, the domestic price of a barrel of crude oil is just below $100. This is up to $40 a barrel from the last week of February. European oil prices are about $113 a barrel, up from $62 a barrel in the same time frame. In terms of energy cost increase, the brunt is being taken by Europe, Asia and Africa.
However, there will be other price increases in store for the US. Generic medications are mostly made in India and China from middle eastern petroleum raw materials. Whereas the US is dealing with the cost of gasoline, countries that rely on the middle east for cooking gas, gasoline, diesel and jet fuel must weigh not just the cost but the availability of the same, given the blockade of the Strait of Hormuz by Iran.
The strategic decision to bomb Iran’s oil fields and refineries has unleashed a torrent of counter strikes by Iran against other countries in the Gulf. The LNG facility in Quatar, the largest in the world, has been so damaged it is estimated it will take 3-5 years to restore. Other refineries in the area will need repairs that will take months to carry out. These time frames depend on opening the Strait of Hormuz, a situation that cannot be done militarily without another escalation in hostilities, as well as cessation of the hostilities themselves.
As the US started this conflict, other countries are looking to the US to end it. Easier said than done. Neither the American nor the Iranian government is ready to concede defeat. Such is the preamble for an “endless war” that, after Iraq and Afghanistan, the US was committed never to enter.
The winners thus far in this conflict are those who profit from the fight without being involved in it. The US is permitting Russia to sell the oil it has in ships in various parts of the world at anchor after previously blocking the import of Russian oil to our allies as way of pressuring Russia in its invasion of Ukraine, another unresolved conflict. China also benefits, as it gets to see American weapons systems deployed up close without being the target. Israel benefits as its goal of degrading Iran to insure it will not be able to unleash its proxies for some time. The greater Israeli goal of Iranian regime change was destined not to happen as the regime’s opposition has no arms. North Korea has become a weapons dealer and may have provided the missile that was fired last week with a 2,000-mile range, enough to hit London or Paris from Iran.
Even Iranian oil has been permitted to be purchased by others in another about-face by the US. It seems that allied access to energy is more important than pressuring Iranians to end the conflict, which begs the question of what the goals of the conflict were to start with.
The inability to articulate goals along with the failure to foresee the blockage of Hormuz begs the question of what kind of preparation went into the “excursion.”
Meanwhile, the Gulf (and other) allies of the US are trying to assess what goals, if any, were attained by the conflict. Iranian civilians feel a sense of abandonment by the US government who were active in urging them to “rise up” against their government. Civilians on all sides have been killed or wounded in the melee. Not a good time not to be able to articulate the purpose of a war that had no legislative support for the simple reason that none was ever asked.
The Economy
Economic activity looked fair going into the war. Economic data is through February 28, the same day the war with Iran was started.
With close to self-sufficiency in oil, the US will likely not be impacted from this oil price shock in the manner of 1973, when OPEC tripled prices and the US imported about a third of its energy needs.
Having said that, export markets for American products will be impacted, albeit unevenly. The oil shock is expected to have a major impact on the economies of Europe, Asia and Africa. For example, fertilizer is in short supply and much more expensive due to it having petroleum in its composition. Shipping, air travel and the like may be curtailed as the higher price of fuel filters into the cost of travel.
On the one hand, the stimulus from the artificial intelligence (AI) buildout could approach $1 Trillion this year. On the other hand, the skyrocketing cost of semiconductor chips may press on margins. Such chips depend on rare earths and exotic materials that the US cannot currently provide domestically.
A multi-year lobbying effort by the banking industry, if successful, will permit banks to effectively repeal the constraints put on them from the 2008 banking crisis. In the short run, this permit billions in new loans to be issued as banks are permitted to reduce their capital cushion. Over time, banks could become riskier with more loans outstanding per dollar in equity. Most of us have seen this movie before. It does not end well.
Inflation
Inflation was going up even before the oil price hikes. Most of the increase last period was in the service sector such as health care, legal services and the like.
With the increase in store this month, it will be of interest to see how long elevated inflation numbers persist. With the repairs to infrastructure previously announced, it could be ten months to five years to bring back all damaged capacity online. First, some sort of truce needs to be announced as no rebuilding will commence without a resolution to the hostilities.
Interest Rates
Interest rates appear to be heading higher. The President’s $200 billion supplemental appropriation for the war with Iran would be enough to add at least ten percent to the year’s budget deficit. Proposed increase for Immigration Enforcement would add more deficit fuel to the fire.
Banks making material increases in their loan portfolios could also be a source of incremental credit demand. With allies backing away from making investments in Treasury securities, higher rates of interest would be required to entice other investors to fund the same.
Finally, the depletion of the US weapons stockpile will likely require several years of appropriations to restore. Hopefully, China will not carry out its threat of invading Tiawan in the interim.
The Stock Market
Stocks are approaching correction territory with one index; the Russell 2000 having slipped ten percent on Friday from its all-time high. We expect other indexes to follow.
On the other hand, those who see this as temporary may be able to pick up certain stocks at relative bargains.
While no one wants to articulate it, it seems that all the signs point to a period of stagflation. It is not an environment where money cannot be made. It does require a different strategy from a low-interest rate/high growth situation.
Warren M. Barnett, CFA
March 25, 2026
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