Even if the Trump administration secures a 60-day ceasefire that reopens the Strait of Hormuz, the world will still suffer economic damage from the month-long closure. By the way, the current deal will allow Iran up to 30 days to reopen the strait.
The Strait May Reopen, But the Damage Is Done
There are no indications yet that Tehran is interested in reopening that strategic chokepoint quickly. But, for the sake of argument, let’s say for a moment that the Iranians do reopen the Strait quickly.
Unfortunately, all of us will feel the economic burn irrespective of the Strait’s reopening.
US Secretary of the Treasury Scott Bessent has described what’s coming to the US economy as “transitory.” Yes, Bessent acknowledged (finally) that there will be short-term pain.
But that pain will not last, contrary to what the more pessimistic experts among us are claiming. The administration would have you believe that any inflation you feel will be short-lived.
According to the administration, any response to raise interest rates at the next meeting of the Federal Reserve Board will be temporary.
Energy Prices Are Already Hammering Americans
Certainly, you will start feeling short-term pain.
You already are.
After all, US consumers are experiencing the highest energy prices in years. The disruption caused by the Iran War is driving these spikes in oil and natural gas prices. It isn’t only from the closure of the Strait of Hormuz, though.
These disruptions are from the destruction and damage of key energy production facilities in the Middle East.
Even though gas prices have reached all-time highs not seen in years, many consumers are deluding themselves into thinking the prices could not possibly go any higher, especially since a deal seems to be in the offing.
That’s certainly the line the Trump administration is selling to the press. For now, it seems as though the press and the financial industry are buying those claims. Some experts in the oil industry, though, have been warning otherwise.
The SPR Buffer Is Running Out
To alleviate the pain of the price spikes, the Trump administration almost immediately released massive amounts of oil from the Strategic Petroleum Reserve (SPR), which the Biden administration had already spent years depleting. The introduction of oil supplies from the SPR has mitigated some of the pain at the pump.
As the US reaches the bottom of its buffers against spiking oil prices, though, there will be no insulation for Americans. They will experience even higher gas prices. What’s more, that pain will start around the weekend of July Fourth. Ironically, that is the 250th anniversary of the United States’ founding.
The pain will only worsen from there. Again, this is true even if the Iranians sign on the dotted line with Trump and immediately reopen the Strait of Hormuz.
Supply Chain Damage Goes Far Beyond Oil
Incredible damage to key infrastructure, such as the Ras Laffan facility in Qatar and Gulf aluminum smelters, has restricted the flow of industrial inputs, including sulfur, helium, and aluminum. These shortages have, in turn, impacted every major industry from automotive supply chains to semiconductor production.
Everything from food to gas and everything in between will suffer from spiking prices. And the explosive cost of inputs for producers will be passed on to the consumers.
The War Reversed Trump’s Economic Gains
At the start of the new year, the administration was celebrating that its policies had lowered inflation for the first time in years. The White House claimed that unemployment was supposedly low. Trump lambasted his former Federal Reserve Chairman, Jerome Powell, for lacking the guts to lower interest rates now that inflation has declined.
All that changed because of the war, though. A war that the president started on his own, with little input from Congress or with any attempt to explain the situation to the American people, who are now bearing the brunt of the cost for this Iran war.
The Fed Has No Easy Way Out
The Fed under Powell was already keeping interest rates higher than Trump wanted. Now that oil prices have been consistently high, the inflation rate has spiked. That’s why even the new Fed Chairman, Kevin Warsh, will likely be unable to lower rates at the next meeting of the Fed.
In fact, he’ll likely increase rates a bit. All that has a stunting effect on the overall economy. Higher rates tighten credit, thereby suppressing business expansion, and drastically increase mortgage and auto loan costs for ordinary Americans.
Even before the war began, there were troubling signs of economic headwinds, including higher-than-usual car payment defaults and rising mortgage payment delinquencies. These trends will only continue.
America Is Heading Toward Stagflation Thanks to the Iran War
Some variation of this pain will be encountered by all Americans starting soon thanks to the Iran war. The only question is how severe this pain will be. If Iran reopens the strait quickly, the pain will be real, but a full-blown depression just might be avoided. If, as many experts fear, the war will not end quickly enough, then the pain will be significant. By year’s end, the United States may experience some combination of the Great Recession of 2008 and the pandemic-induced recession of 2020.
Only this time, there won’t be any way to mitigate the worst pain because the Fed’s tools aren’t effective against the rise of stagflation (high inflation, low employment, and sclerotic economic growth).
Stagflation, my friends, is where this is all heading. And stagflation will be the real killer of the US economy going forward.
About the Author: Brandon J. Weichert
Brandon J. Weichert is Senior National Security Editor. Recently, Weichert became the editor of the “NatSec Guy” section at Emerald. TV. He was previously the senior national security editor at The National Interest. Weichert hosts The National Security Hour on iHeartRadio, where he discusses national security policy every Wednesday at 8 p.m. Eastern. He hosts a companion show on Rumble entitled “National Security Talk.” Weichert consults regularly with various government institutions and private organizations on geopolitical issues. His writings have appeared in numerous publications, among them Popular Mechanics, National Review, MSN, and The American Spectator. His books include Winning Space: How America Remains a Superpower, Biohacked: China’s Race to Control Life, and The Shadow War: Iran’s Quest for Supremacy. Weichert’s newest book, A Disaster of Our Own Making: How the West Lost Ukraine, is available for purchase at any bookstore. Follow him via Twitter/X @WeTheBrandon.
