Iran-Israel War: An economic storm for America and the world

As Israel launches a large-scale military offensive against Iran, the Middle East has erupted into conflict, shaking global markets and placing immense strain on the international trade and supply chain ecosystem. Israel’s precision strikes on Iranian infrastructure, and Tehran’s rapid retaliation, have destabilized global energy markets and ignited fears of a full-blown global economic crisis.

At the heart of the turmoil lies the Strait of Hormuz, a strategic waterway through which nearly 20% of the world's oil and 25% of global LNG flows daily. Now under the threat of Iranian closure, the mere possibility of restricted access has sent Brent crude prices soaring from $72 to $78 per barrel in June 2025. Analysts from Goldman Sachs warn that if the strait is shut, prices could surge past $150 per barrel, triggering widespread supply chain disruptions and inflationary shocks globally.

For the United States, already burdened with $37 trillion in debt and persistent inflation, the implications are severe. Every $10 increase in oil could spike consumer inflation by 0.5%. Should prices reach $130 or higher, inflation could hit 5.5%, potentially forcing the Federal Reserve to raise interest rates again stalling economic recovery. Gasoline prices could skyrocket from $4 to over $7 per gallon, adding an estimated $2,500 in annual fuel expenses per household, according to Clear View Energy Partners. Industries like transportation, agriculture, and manufacturing, deeply linked to global trade and supply chain management, would face surging operational costs imperilling the IMF’s 2% growth forecast for 2025.

Israel is grappling with its own energy crisis. The shutdown of its Leviathan and Karish gas fields, responsible for two-thirds of its domestic supply, has forced the country to revert to costly coal and fuel oil. Gas exports to Egypt and Jordan have stopped, slashing foreign exchange earnings.

The war’s economic cost, pegged at $200 million per day, equates to 5% of Israel’s GDP in 2025. Economist Yaakov Sheinin warns that a prolonged war could shrink Israel’s GDP by 20%, pushing it into a deep recession.