The turmoil in the Middle East, combined with tariffs, puts renewed pressure on the U.S. economy.

Escalation of Middle East Conflict Raises Global Concerns

As tensions between Israel and Iran intensify, the potential economic impact, despite the conflict being geographically distant from the United States, looms large. Several economists warn that the geopolitical tensions in the Middle East could become another significant blow to the U.S. economy, particularly amid the current tariff impacts.

JPMorgan candidly stated in its latest report: "The global economy in 2025 faces multiple shocks, with the possibility of all-out war in the Middle East being one of the greatest risks."

Strait of Hormuz: A Potential Risk Hotspot

ING's Chief International Economist, James Knightley, pointed out that one of the most direct impacts could stem from the potential blockade of the Strait of Hormuz. This vital global energy transport line could be disrupted by conflict, driving up oil and natural gas prices.

The Strait of Hormuz is the only maritime passage between the Persian Gulf and the Indian Ocean, barely 29 miles wide at its narrowest, yet it handles nearly one-third of the world's crude oil and one-fifth of LNG transportation. According to the U.S. Energy Information Administration (EIA), this passage is "the world's most crucial oil chokepoint."

IEA data shows that about 20 million barrels of oil and petroleum products pass through the strait daily in 2023, with most destined for Asian markets, including major economies such as India and Japan.

Rising Energy Prices Could Squeeze U.S. Household Spending

Knightley noted that even though the U.S. has a strong energy self-sufficiency, rising oil prices will still quickly pass through to the end market, further compressing consumer spending power.

"Consumers are already feeling the strain from tariff-induced price hikes. If oil prices rise further, the U.S. economy might face a more pronounced slowdown risk," Knightley stated.

Market Optimism Persists: Iranian Actions Might Be Limited

Despite the clear risks, some analysts believe the worst-case scenario may not materialize. S&P Global Market Intelligence suggests that the Iranian government might lack the capability for a prolonged blockade of the Strait of Hormuz.

Their analysis report states: "Iran is more likely to choose limited disruptions through military deployments, such as intercepting certain shipments based on the nationality and destination of the vessels, rather than a full-scale blockade."

Powell Responds: Energy Shock Unlikely to Be a Long-lasting Inflation Source

Federal Reserve Chairman Jerome Powell stated on Wednesday that officials are closely monitoring the situation in the Middle East and acknowledged that energy prices might rise in the short term due to the conflict, but they typically do not lead to long-term inflation.

"History shows that Middle East turmoil often leads to energy shocks, but the effects are generally short-lived." He also referenced the two energy crises of the 1970s, noting that America's dependence on foreign oil has significantly decreased and should not be compared to the past.

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