(Editor’s Note: This report was put together with information available at press time.)
Rising oil prices linked to geopolitical tensions in Iran are creating a complex ripple effect across the U.S. economy.
Energy producers are benefiting, while consumers and downstream industries face mounting pressure. Yet uncertainty over the duration of U.S. military operations in Iran is holding most businesses back from making long-term strategic decisions.
The price of Brent crude oil rose to more than $110 on Friday, March 27, near a 2026 high, and more than 50 percent since the start of the conflict.
Bill Adams, Chief Economist for Comerica Bank, a division of Fifth Third Bank, N.A., said rising energy and oil prices clearly favor producers but strain consumers. Higher prices will push U.S. manufacturers to find more affordable ways to use energy.
At the same time, the value of renewable energy forms is likely to increase the longer the conflict continues. Demand fell for such items following the elimination of tax credits under the Trump administration in late 2025.
“It will help increase the demand once again for EVs and renewables like solar,” Adams said.
Adams noted that the cost of higher oil prices often spreads beyond a few key sectors. Consumers will face rising prices, leaving many with less disposable income. Hospitality and dining industries are often the first to feel the impact, as these are short-term discretionary spending decisions.
“Some households might have less money for eating out,” he said.
Higher oil prices tend to increase inflation numbers across the board, absent any inverse cost trends in other industries, Adams said. Moderately rising inflation and unemployment numbers have some economists predicting interest rate increases from the Federal Reserve before the end of 2026.
Forbes reported that odds of an interest rate increase rose above 50 percent among traders on March 27, according to the CME Group’s FedWatch tool.
Auto Industry Impact
Strategic decisions in the automotive industry evolve slowly, moving at a “glacial pace,” according to Sam Fiorani, Vice President of Global Vehicle Forecasting for AutoForecast Solutions LLC. That aligns with consumer behavior, as short-term oil price spikes usually have little effect beyond complaints, he said.
However, if the Middle East conflict continues for weeks or months, some consumers may consider smaller vehicles or EVs to save on gas and reduce costs.
“If high oil prices persist, some buyers who wouldn’t have considered it six months ago will absolutely explore an EV or smaller vehicle,” Fiorani said.
U.S. consumers generally require a substantial price shock at the pump to change buying habits—well over $1 per gallon higher, or at or near $5 per gallon, Fiorani said.
That scenario could challenge OEMs, whose EV revenues fell after the Trump administration rolled back tax incentives effective last fall. Selling EVs now costs manufacturers more.
“We’ve seen dozens of EV models removed from the marketplace,” Fiorani said. “A prolonged period of much higher gas prices could renew consumer interest.”
Still, it might take years of sustained EV and small vehicle demand to influence manufacturer strategy.
“If manufacturers believe this conflict will last several years, we could see a gradual shift toward smaller engines,” he said. “But there’s a lot to consider before making major decisions.”
As oil prices rose in early March amid escalating global tensions, the impact appeared at the pump. A recent CarEdge report notes that for U.S. auto retailers navigating a cooling EV market, this shift could become an unexpected catalyst.
“Recent national sales data shows EV demand weakening after the expiration of several federal incentives,” said CarEdge Automotive Retail Analyst Justin Fischer. “January 2026 EV sales totaled roughly 66,000 units, down nearly 30% year-over-year and about 20% from December. Market share slipped to about 6% of new vehicle sales, down sharply from the 10.5% peak in Q3 2025. Yet historically, rising gasoline prices have been one of the strongest drivers of electrified vehicle demand.”
Fischer noted that sustained increases at the pump often shift consumer purchase decisions quickly, typically boosting hybrid demand first before full EV adoption accelerates.
“For dealers managing EV inventory, incentive structures, and shifting consumer sentiment, fuel price volatility could significantly influence demand patterns in the coming months,” he said.
While EV growth has cooled recently, the broader electrification trend remains intact. In fact, 2025 ended as the second-strongest year on record for U.S. EV sales. However, growth has moderated. EV market share fell from 8.1% in 2024 to roughly 7.8% in 2025, prompting several automakers to adjust production targets to align with current demand, according to CarEdge.
Rising oil prices typically push gasoline prices higher, which quickly alters the economics of vehicle ownership. For example, a vehicle averaging 25 miles per gallon driven 15,000 miles annually costs about $1,950 per year in fuel at $3.25 per gallon. If gas rises to $4.50 per gallon, annual fuel costs jump to roughly $2,700—a $750 increase. By comparison, most EV drivers spend $500–$800 annually on electricity.
Other Economic Factors
Vacation and air travel may not feel immediate effects because consumers often plan trips weeks or months in advance. Ticketed entertainment purchases may also be insulated in the short term. However, the longer high oil prices persist, the broader the economic impact across multiple industries.
The first month of the Iran conflict is too early to predict macroeconomic effects, Adams said. The impact could be modest if the war ends soon, though oil prices will likely take longer to fall than they did to rise. Adams cited the status of the Straits of Hormuz as a major factor influencing energy prices.
“I deal in scenarios, and it’s still early to say what the most likely outcome will be,” Adams said. “Understanding scenarios is critical for forecasting, and I don’t yet know the most probable outcome. There’s just a lot of uncertainty.”
One consistent factor is that oil prices, especially gas costs, have an outsized effect on consumer sentiment and perceptions of inflation. Surveys show oil prices heavily influence how people feel about the economy.
“People can’t escape gas prices. They see them every time they drive, and that perception plays a role,” Adams said.
The fear of slowing growth
Soaring oil prices threaten to hit US growth, worsen inflation, and keep the Federal Reserve from lowering interest rates, top economists have warned.. U.S. oil prices have jumped almost 50 percent since the US and Israel struck Iran at the end of last month, to between $90 and $110, sending the costs of non-diesel gas to over $4 in large swaths of the country.
The majority of academic economists polled by the Clark Center for Global Markets shortly after the conflict in Iran started indicated that US growth would decline markedly if oil prices remain at $100 a barrel.
Furthermore, about 68 percent of respondents anticipated a significant hit to GDP growth this year of at least 0.25 to 0.5 percentage points should oil stay at $100 for the rest of 2026, compared with a scenario with $75 oil. Just 2 percent polled by the Clark Center thought the economic impact of high oil prices would be positive, with the rest expecting little to no impact in either direction.
“If [the war] were to be extended, it wouldn’t really disrupt the US economy very much at all,” said Kevin Hassett, director of the White House’s National Economic Council. Multiple media outlets debated the validity of that and similar statements from Hassett in mid-March.
If elevated fuel prices persist for six months or longer, several structural shifts could follow, according to multiple media reports:
- Increased hybrid demand across mainstream brands
- Stronger used EV sales as affordability becomes a larger factor
- Greater consumer openness to EV leases
- Renewed OEM investment momentum in electrification
- Reduced need for aggressive EV incentives
Soaring oil prices threaten to hit U.S. growth, worsen inflation and keep the Federal Reserve from lowering interest rates, top economists have warned ahead of the central bank’s first rate decision since the Iran war began, according to the Financial Times in mid-March.
U.S. oil prices have jumped almost 50 per cent since the US and Israel struck Iran at the end of last month to about $95 a barrel, sending the costs of petrol and diesel at the pump surging higher.
Moody’s Chief Economist Mark Zandi previously told Business Insider that he saw the threat of economic recession for the U.S. as increasingly likely. Following the start of the war in Iran, Zandi believes that the threat is rising, largely because of higher energy prices and a weakening labor market. Adams referenced a fragility in the economy, calling the military action in Iran an escalation.
“Recession is once again a serious threat,” Zandi wrote in an X thread in mid-March. “Even before e the recent disconcerting events in the Middle East, our machine learning based leading economic indicator model put the probability of a recession starting in the next 12 months at an uncomfortably high 49 percent.”
Rising oil prices driven by the conflict in Iran are delivering a mixed but increasingly consequential impact across the U.S. economy. Higher prices are benefiting energy producers but place a growing strain on consumers and a wide range of businesses.
Higher fuel costs are also expected to squeeze household budgets, reducing discretionary spending in sectors like dining and hospitality, and raising operating expenses for manufacturers, retailers, and transportation-dependent industries. Adams confirmed that consumer spending remains a key component of the U.S. economy’s health.
Ultimately, the depth and duration of effects in inflation, consumer spending, and business investments will depend largely on whether the conflict proves short-lived or evolves into a prolonged disruption to global energy markets.
“There are just so many considerations right now,” Fiorani said. “The news seems to change daily.”
