The ongoing conflict between the US and Iran has far-reaching implications for the global economy, with the Strait of Hormuz remaining effectively closed due to the war. As a result, global oil shortages are forcing countries to take severe measures to conserve their reserves, as reported by the Washington Post.
The war's impact on the US economy is already being felt, with gas prices reaching their highest level in years. According to data from AAA, the average cost of gas in the US has jumped about 30% over the last month, with the national average hitting $3.97, the highest since 2023. This increase is not only affecting drivers but also has a ripple effect on the supply chain, as oil is used to power machines that manufacture goods and diesel that powers trucks carrying them to stores.
Alex Jacquez, chief of policy and advocacy at the Groundwork Collaborative, notes that the impact of oil and gas shortages on the supply chain can be categorized as first-order effects or second-order effects. First-order effects are the direct impacts of the conflict, resulting in higher prices at the gas pump, while second-order effects are indirect and broader, with potential impacts on the price of crops, semiconductor chips, and medical devices that could eventually affect consumers.
Supply Chain Disruptions
The conflict has disrupted the global helium supply after Iranian attacks in Qatar, the second-largest producer of helium after the United States. Helium is a key import used in aerospace, magnetic resonance imaging (MRI), and in making semiconductor chips that power AI. Increases in oil prices could also result in higher airfare and shipping costs, according to Jacquez.
The price of jet fuel has doubled since the start of the war, according to the International Air Transport Association. United Airlines announced that it would have to cut flights due to the surging cost of fuel, with CEO Scott Kirby stating that if prices stayed at this level, it would mean an extra $11 billion in annual expense just for jet fuel.
Agricultural Impact
Farmers in the US are struggling as the spring growing season approaches, facing higher fertilizer costs and falling commodity prices. A third of global urea trade, which is a solid nitrogen fertilizer, passes through the Middle East region, with about 20% of imported fertilizer to the US coming specifically from Qatar. Nitrogen fertilizer is critical to grow corn, which is cultivated by about 500,000 farmers in the US, according to the National Corn Growers Association.
The White House has promised that the US economy wouldn't be disrupted "very much at all" by supply issues, with Kevin Hassett, the director of the White House National Economic Council, stating that the administration has a plan to address the disruption, including finding alternative sources of fertilizer from around the world.
Economic Fallout
The conflict has also affected the housing market, with the average 30-year fixed mortgage rate ticking up to its highest level in months last week, reaching 6.22%. Mortgage rates are closely tied to the overall state of the economy, and the current upward pressure on mortgage rates, stemming from the war and inflation fears, serves as a primary barrier preventing the spring housing market from capitalizing on otherwise favorable inventory and price conditions, according to Joel Berner, a senior economist at Realtor.com.
As the war approaches its fifth week, it is clear that the impact on the US economy will be far-reaching, with effects on gas prices, supply chains, agriculture, and the housing market. The situation continues to evolve, and it remains to be seen how the conflict will ultimately affect the global economy.
