Apr 17, 2026
Emerging markets may offer more than meets the eye. Selectivity matters.
How bad can it get? Gauging the Iran war’s impact on the U.S. economy and markets
In this report, we focus on the potential impact on the U.S. economy. Higher oil prices affect the economy through three main transmission channels: Inflation (as higher energy prices reduce real income), consumer saving behavior and fiscal (through the Treasury term premium). While the United States and other major economies are far less oil intensive than they were in the 1970s, the potential oil and gas supply disruptions could rival or even exceed the 1970s.
Key takeaways
- Major economies are much less oil intensive than they were in the 1970s. But this year’s disruption could rival the 1970s.
- The effective closing of the Strait of Hormuz presents a major threat to the global economy and markets. That’s the immediate concern for investors.
- Higher oil prices can significantly impact the U.S. and global economy. There are three main transmission channels: inflation, consumer saving behavior and fiscal (through the Treasury term premium).
- Equity markets can withstand an oil shock—assuming no recession or significant Fed policy rate hikes. Investors will closely monitor these twin risks.
- In past asset market sell-offs driven by oil price shocks, investors found protection in gold, emerging market debt, energy equities and macro hedge funds.
- The Gulf countries have been a growing force in the global economy. Their continued ability to project soft power now hangs in the balance.
Read How bad can it get? Gauging the Iran war’s impact on the U.S. economy
Key risks
The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
Important Information
The key question for investors: Will the oil price shock lead to Fed rate hikes and/or a recession? Historically, that’s the painful scenario for risk assets.
Joe Seydl
Senior Markets Economist
Harry Downie
Cross-Asset Strategist
Published Mar 18, 2026
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