The Israel-U.S.-Iran conflict, the world is spending money: oil price fluctuations push up prices, stock markets and consumer confidence both decline.

Ask AI · How Rising Oil Prices Are Worsening the Global Risk of Stagflation

Source: Time Weekly (时代周报) Author: Ma Huan (马欢)

On March 28, the war between the United States and Israel’s strikes on Iran had reached one month.

Amid tug-of-war among multiple parties, the conflict has shifted from a “lightning war” to a “war of delay.”

According to a report by Xinhua News Agency, on March 26 local afternoon, US President Donald Trump posted on social media that “at the request of the Iranian government,” he would delay his “destruction” action against Iran’s energy facilities by 10 days, with the deadline moved to 20:00 US Eastern Time on April 6 (8:00 Beijing Time on April 7).

Although Trump said that the relevant negotiations are “going very smoothly,” the US and Israel have not stopped their military actions against Iran.

Image source: The White House

According to a report by CGTN/China Central Television (CCTV) News, in the early hours of March 28, multiple rounds of intense bombing hit the Iranian capital, Tehran. Based on the observations of the CGTN correspondent in Tehran over the past days, this US-Israel attack on Tehran is the largest-scale operation in recent times.

Iran also did not hold back, launching strikes on US military bases in Saudi Arabia. CCTV News cited a March 27 report from The Wall Street Journal that US and Saudi officials said Iran attacked the Saudi Prince Air Base in Saudi Arabia, which hosts US troops, on the day in question, injuring US personnel and damaging multiple US Air Force aerial refueling tankers.

Evidently, there are no signs that military actions by all sides are easing, and in the short term, it may be difficult to quickly enter ceasefire talks.

The cost paid by the US is obvious. According to a CCTV News report, in the first six days of the US’s large-scale military action against Iran, the US military spent more than $30k, and future budget figures exceed $200 billion.

And this is only the loss on the US side; the war’s impact is also forcing the global economy to pay a heavy price.

In the past month, about one-fifth of global crude oil and liquefied natural gas shipments have been disrupted. Brent crude prices have surged sharply, far above the levels before the outbreak of the conflict. On March 27 local time, Brent crude futures’ gains at one point expanded to 5%, closing at $106.29 per barrel. WTI crude oil rose by more than 7.5% at one point during the day and closed at $101.18 per barrel, again crossing the $100 mark.

This energy shock has spread to every corner of the world, pushing most countries or regions’ inflation higher, slowing economic growth, and even triggering the risk of stagflation.

The Iran–US–Israel conflict is making the whole world foot the bill.

The US: 30% chance of a recession

In 2003, when the US launched the Iraq War, American taxpayers paid a steep price of about $3 trillion, equivalent to $8,500 per citizen. Now that the US has joined the military action against Iran, how much will American taxpayers have to pay this time?

According to a report by CCTV News, the US Department of Defense’s report shows that in the first six days of the US’s large-scale military action against Iran, US forces spent more than $11.3 billion—almost enough to build a Ford-class aircraft carrier.

And this figure does not include certain related costs, such as deploying troops and replacing equipment. Therefore, the US’s actual spending could be higher in practice.

Image source: The White House

Not only that, the Pentagon has asked the White House to approve a funding request totaling more than $200 billion, for the military action against Iran going forward.

The bills brought by this conflict are not only for the US government to pay—American people are paying as well.

As of March 25, according to the latest data from the American Automobile Association (AAA), the average price of gasoline nationwide reached $3.98 per gallon, up about 35% from a month earlier. Diesel prices surpassed $5.345 per gallon, jumping more than 40% within a month.

Fifty-five percent of respondents said that rising oil prices have already affected household finances, with 21% saying it has affected them a lot. Meanwhile, 87% of Americans expect that oil prices will continue to rise over the next month.

Rising oil prices are driving up consumers’ cost of living. First and foremost is consumer confidence. On March 27, data released by the University of Michigan showed that the final reading of March consumer sentiment fell to 53.3, below February’s 57.3 and the lowest level since December last year.

Nationwide financial market economist Oren Klachkin said: “We expect that weakening consumer confidence, combined with a decline in real purchasing power and a drag from a weaker wealth effect, will further slow consumption growth in the second quarter.”

American pessimism about the economic outlook is also directly reflected in the stock market. Both the S&P 500 index and the Nasdaq Composite index have fallen to more than six-month lows.

On March 27 local time, all three major US stock indexes closed lower. The Nasdaq fell 2.15% and dropped 3.23% for the week. The S&P 500 fell 1.67% and dropped 2.12% for the week. The Dow fell 1.72% and dropped 0.9% for the week—marking a fifth consecutive week of declines.

Wall Street economists have repeatedly lowered their growth forecasts for the US economy in 2026, while raising their estimates for inflation and unemployment, and also increasing their estimated probability of an economic recession.

In its latest report, Goldman Sachs expects that, affected by the Iran situation, the US unemployment rate will rise from the current 4.4% to 4.6% by the end of 2026, and it expects the probability that the US economy will fall into a recession over the next year has risen to 30%.

The world economy: Hard to recover this year

It’s not only the US, Israel, and Iran; the whole world is paying this bill together.

Most directly are the energy facilities damaged amid the fighting. Destroying energy infrastructure can take only minutes, but rebuilding can take months or even years.

In Qatar, the LNG export facilities damaged by an Iranian missile attack in this incident are expected to take three to five years to repair. The lost export volume is about 12.8 million tons per year, which is expected to cause about $20 billion in annual revenue losses. This also means that even if a ceasefire is reached right now, the supply gap will be difficult to fill in the short term.

These are only the losses so far. According to a CCTV News report, the mediators pointed out that the likelihood of reaching a ceasefire remains bleak, because both Iran and the United States have put forward extreme demands the other side cannot accept.

As long as the US-Israel conflict with Iran continues for another day, the damage to energy facilities will accumulate at a multiplied rate.

Image source: TuTou ChuangYi (图虫创意)

And these losses are shared by the world as a whole.

According to relevant institutions’ economic stress-test models, if the US, Israel, and Iran’s military conflict leads to a blockade of the Strait of Hormuz for three months, international oil prices could spike to $170 per barrel in the short term. In that case, major global economies will all face severe risks of stagflation.

Oil price volatility will comprehensively push up prices in countries around the world. Analysis firms expect that among them, the inflation peaks in the European Union and the UK are projected to jump by 2.0% and 1.9%, respectively. This year’s GDP in those economies is also expected to shrink by -1.2% and -1.1%, respectively. At present, the European Central Bank has also made more pessimistic judgments about the economic outlook for the euro area.

“If oil prices stay at $100 per barrel, the most direct impact will be a reduction in consumer spending,” said Bernard Yaros, chief US economist at Oxford Economics. “Low-income consumers around the world will bear the heaviest burden, because energy spending accounts for a very large share of their monthly expenses.”

Gregg Dacocok, chief economist at EY-Parthenon, said that in the worst case, oil prices could remain above $100 per barrel, driving up prices of goods and slowing global growth. Based on his estimates, persistent conflict could push global inflation about 2 percentage points above normal levels.

Citi analysts believe that if broader market turmoil continues, countries with lower foreign exchange reserves such as Argentina, Sri Lanka, and Turkey will face higher risks of capital outflows and currency depreciation.

In Asia, experts at the Japan Institute of Life Insurance Basic Research predict that if the war gets stuck in a stalemate, Japan’s real economic growth rate would fall by 0.31 percentage points. This further worsens Japan’s economy already struggling with inflation. The OECD (Organisation for Economic Co-operation and Development) has also adjusted its forecast for South Korea’s economic growth this year to 1.7%, down 0.4%.

On March 27, the OECD predicted that global economic growth would slow from 3.3% last year to 2.9% in 2026.

The OECD said that this month’s Middle East conflict has already wiped out the chance of an upward revision to this year’s global growth, and has opened the door to greater inflation threats.

At the start of 2026—before this war broke out—the world economy was actually on a stronger trajectory than forecast. At that time, projections suggested that global growth in 2026 might be raised by about 0.3 percentage points. However, those opportunities have now been destroyed by the impact of the conflict.

“Even if the fighting ends tomorrow, oil prices won’t return to the way they were overnight,” said economist Roubini.