The war threatens to push the “faltering” American economy to the brink of the abyss

The term “fog of war” refers to the state of confusion and uncertainty that prevails on the battlefield, and the accompanying possibility of catastrophic errors.

This principle also applies to the economic consequences of wars, especially when they break out in a region that constitutes a vital corridor for shipping one-fifth of the world’s oil and one-third of natural gas, which the world needs.

Although no one really knows how the joint US-Israeli strikes on Iran will affect the global economy, a warning issued on March 6, 2026 reflects these concerns, stating that “this will lead to damage to the world’s economies,” as one energy minister said.

The impact includes one of the largest oil price shocks in history, which pushed the price per barrel to nearly US$120 on March 8. As for the US economy, it was already showing signs of weakness and faltering, as data released on March 6 showed an unexpected loss in jobs recorded in the previous February.

The biggest risks

Economists expect that the biggest economic risks of this war on the United States will be inflationary pressures and slow growth due to high oil prices. In addition, the uncertainty resulting from the “fog of economic war” may lead to consumers being reluctant to spend and companies being reluctant to hire and invest, and these conditions will make it difficult for policymakers to direct the economy.

There are currently significant doubts about the duration of the war in Iran, the number of countries involved, and its costs, and this is likely to continue for some time. All of these factors will determine the extent of the war’s impact on the economy of the United States and around the world.

Observers believe there will be disruptions to the supply of oil and liquefied natural gas, which are difficult to ship through the Strait of Hormuz. On March 9, the price of crude oil was approaching $90 a barrel after reaching about $120 the day before. This is up from $67 before the United States and Israel began bombing Iran on February 28, sending gasoline prices across the United States higher.

“Stagflation”

Most of the oil and liquefied natural gas produced in the Middle East is transported through the Strait of Hormuz, but the threat of attack has made travel through this waterway unsafe, leading to a near complete halt of shipping through this vital passage.

This military campaign is also costly for the United States, which has already witnessed the loss of aircraft and a decline in its missile stock. According to preliminary estimates, the cost of the war amounts to about one billion dollars per day.

The Iranian revolution in 1979 also led to a sharp rise in oil prices, which was an important factor in exposing the United States and Europe to an economic phenomenon called “stagflation,” which is a combination of stagnant growth and high inflation.

This is unlikely to be repeated to the same extent now, as economies are less dependent on oil and natural gas than they were in the late 1970s and early 1980s.

What has made it more difficult to ease price pressures currently is inflation expectations that fuel actual inflation.

Tough choices

However, supply shocks remain difficult to address, as the world witnessed with the Corona pandemic, and policymakers will likely have to make some difficult choices that involve difficult trade-offs.

One question raised by supply shocks is whether the US Federal Reserve should raise interest rates to combat inflation, or lower them to compensate for a weak economy and high unemployment rates.

Raising interest rates reduces inflation by reducing demand for loans and suppressing growth, while lowering interest rates has the opposite effect. In the late 1970s, during the beginning of the pandemic, the Federal Reserve chose to keep interest rates low, to help support the economy and the labor market, but in both cases, this led to a sharp rise in inflation.

Inflation was reduced in the late 1970s and early 1980s by a strong reversal in monetary policy with rising interest rates, causing a recession that was at that time the deepest since the 1930s. About “Aija Times”

• Uncertainty caused by the “fog of economic war” may make consumers reluctant to spend and companies reluctant to hire and invest.

• Questions about whether the Federal Reserve should raise interest rates to confront inflation, or lower them to compensate for the weak economy and high unemployment rates.