Intensifying violence in the Middle East could send oil prices careening above their all-time high, raising the risk of higher inflation and slower economic growth, experts said.”The biggest hit will be the consumer,” said Ryan Sweet, a chief global economist at Oxford Economics. “To kind of put it into context, every penny increase in gasoline prices reduces consumer spending by one and a half billion dollars over the course of a year.”Brent crude briefly topped $119 a barrel on Thursday after fresh attacks on energy infrastructure, and analysts say prices could climb much higher if supply disruptions worsen — a shift that would push up gas prices, squeeze household budgets and ripple across the broader economy.Consumers are already feeling the impact at the pump, where average gasoline prices are now almost $1 higher than they were before the war started. On Thursday, prices reached $3.88 per gallon, according to data from AAA. At the same time, the cost of jet fuel is rising, leading some carriers to hike their ticket prices.Oil prices hit record highs in July 2008, when both Brent and West Texas Intermediate, the U.S. benchmark, reached around $145 per barrel, or about $215 a barrel on an inflation-adjusted basis, according to data from FactSet.To be sure, that inflation-adjusted figure remains well above current levels. Yet oil could eventually top $200 a barrel if the conflict drags on, TD Securities said in a research note last week.U.S. insulated, but not immuneIf oil prices approach 2008 levels, experts say Europe and Asia could experience a mild economic contraction, but the U.S. likely won’t dip into a recession. The U.S., they explain, is more insulated from global energy spikes, given that the country is a top oil producer and because less consumer spending goes toward energy production.”I think the U.S. stands better than most,” Samuel Tombs, a chief U.S. economist at Pantheon Macroeconomics, told CBS News.Still, even if the U.S. dodges a recession, the economy is not immune to disruption. If Brent oil prices rise to $140 per barrel and remain there for two months, U.S. layoffs could rise as companies cope with higher costs, pushing up the jobless rate, according to a March 11 Oxford Economics research note.”This is when you start getting concerned about that vicious cycle,” he said. “Businesses start to lay off workers, and then that also hits consumption.”Sweet said the stock market could fall, leading higher-income households to pull back on spending. Lower-income households would bear the brunt of rising gas prices, forcing some to cut back on discretionary spending, he added.”The concern is the knock-on effects, including what it means for the U.S. stock market, because consumer spending is concentrated [among] higher-income households,” he said. Inflationary risksEconomists say rising oil prices could also inject inflationary pressure into the U.S. economy as shipping costs rise.”Even though the U.S. imports very little through [the Strait of Hormuz], it’s still causing some bottlenecks in the global supply chains that could also be inflationary,” Sweet said.A recent analysis from Pantheon Macroeconomics found that if oil prices increase to $150 per barrel and stay at that level for three months, the Consumer Price Index could jump to an annual pace of 6%, up from 2.4% recorded in February.Experts have warned consumers could start to see higher food prices, as the conflict drives up the price of diesel, the fuel used by trucks and barges that transport U.S. goods. Earlier this week, diesel surpassed $5 a gallon for the first time since 2022.”Even if oil prices stabilize, the persistence of higher freight costs, longer shipping routes, and insurance costs can keep delivered prices elevated for fuel and intermediate goods,” Ramnivas Mundada, director of Economic Research and Companies at GlobalData, said in a research note on Thursday. “That combination increases the likelihood that inflation proves stickier than expected.”Can consumers weather the shock?Experts said larger tax refunds, which are up this year due to the “big, beautiful bill” act, will help consumers weather some of the cost increases related to the Iran war. The nonpartisan Tax Foundation estimates the average tax refund will be $748 — roughly equal to the additional fuel costs the typical U.S. household will face this year due to higher gas prices.”Households do still have a reasonable amount of savings to get through a temporary period of higher energy prices,” Tombs said.The longer the conflict drags on, the more financial risk it poses to U.S. consumers. “The U.S. consumer can weather a couple of weeks of high energy prices, but with each passing month the economic costs really begin to mount,” Sweet said.
