The Iran war is effectively ‘a tax’ on U.S. households that could accelerate the economy’s widening K shape, Moody’s says

The conflict in the Middle East has sent gasoline prices in the U.S. soaring to their highest level in four years. That’s bad news for everybody, but the domestic consequences of the war are likely to ripple unevenly, and in the process undermine one of the country’s primary engines of economic growth.

Iran’s effective blockade of the Strait of Hormuz has starved the global economy of around 20% of the oil supply it is accustomed to, and Americans are witnessing the effect every time they go past a gas station. Average gasoline prices in the U.S. hit $4 a gallon on Tuesday, the first time that threshold has been crossed since 2022. 

And expensive gas is for some households a huge concern. When gasoline prices spike, they drain real disposable income that would otherwise flow into the broader economy, forcing some families into making hard choices about where to put their money. By hurting lower-income households’ spending power and leaving the finances of the wealthy relatively insulated, the war in Iran could add even more fuel to the country’s growing K-shaped economy, according to a Moody’s Analytics report published this week.

“While household consumption remains the primary driver of U.S. economic growth, the ongoing Middle East conflict and resulting surge in oil prices are testing its resilience,” the report’s authors wrote. “If the conflic...