Iran war enters 5th month with US economy resilient, oil at $86

Five months into the US-Iran war, America's two main economic pillars — consumer spending and business investment — have absorbed the shock of $126 oil and supply-chain disruptions, though renewed hostilities over the Strait of Hormuz threaten to test that resilience.

"The consumer and corporate sectors have shown surprising durability, but the risk premium embedded in energy markets remains dangerously high," said Elena Fischer, geopolitical risk analyst at Edgen. "Each new escalation in the Strait rewrites the calculus for businesses planning capital expenditure."

Brent crude traded at $86.51 a barrel Wednesday after the US bombed more than 80 targets in Iran this week, following Tehran's missile strikes on three commercial vessels transiting the Strait of Hormuz. The national average US gasoline price stood at $3.94 per gallon, up from $2.98 before the war began in late February, according to AAA data. Only 13 vessels transited the Strait on Wednesday, compared with 138 per day before the conflict, Kpler data show. The UK economy grew just 0.1% in May after a 0.1% contraction in April, with the Office for National Statistics citing Middle East conflict-related supply chain disruptions across manufacturing, hospitality and travel.

The danger is not past. Iran's new leadership views de facto control of the Strait — through which about a fifth of the world's oil and gas normally flows — as its primary deterrent and a potential revenue source, according to Eurasia Group analyst Gregory Brew. The June 17 Memorandum of Understanding that paused hostilities contained a deliberately ambiguous clause on navigation rights, leaving both sides to interpret control differently. If Iran follows through on threats to also disrupt the Bab el-Mandeb Strait — where crude transit has already risen to 5.4 million barrels per day in Q1 2026 as shippers reroute from Hormuz — oil prices could spike toward $200, a senior Houthi official has warned.

Why the Strait of Hormuz Became the War's Centerpiece

What began in March as a US campaign to halt Iran's nuclear program has transformed into a conflict over control of the world's most important energy chokepoint. Iran's ability to throttle shipping through the 21-mile-wide Strait using cheap drones and missiles proved during the war to be its most effective source of leverage — more potent, its leaders now believe, than the nuclear program that triggered the initial US strikes.

"The closure of the Strait of Hormuz was always understood to be this massively destabilizing black swan event," Brew said. "And it turns out to have been more manageable." Crude oil prices peaked at $126 per barrel in April but typically hovered closer to $100 — well short of the $200 many analysts predicted. That relative stability reflects increased US production, China's unexpected ability to slash imports, and the growing adoption of electric vehicles and renewables.

Internal Discontent Adds to Regime Pressure

A confidential report prepared for Iran's presidency and obtained by IranWire this month found that only 9% of Iranians support maintaining the current political system, while 53% call for fundamental reforms and 19% favor outright regime change. The survey, conducted by the Ara Opinion Research Center in May, recorded 64% of respondents reporting persistent anger — up 12 percentage points from a December 2025 government survey — and 81% struggling to obtain sufficient food.

Notably, 46.9% of respondents blamed government inefficiency for Iran's economic crisis, while 26.3% cited corruption and only 20.7% pointed to foreign sanctions. That finding suggests many Iranians do not primarily blame outside powers for their deteriorating conditions, potentially undermining Tehran's narrative that the war is a nationalist struggle against American aggression.

The Economic Transmission Chain

The conflict's impact on the global economy has been uneven. US consumer spending and business investment — the two main pillars of domestic demand — have held up, according to the source material. But the UK's GDP data shows the war is taking a toll on other economies: the 0.1% May expansion followed an eight-month low in April, with the ONS reporting that businesses across manufacturing, hospitality, travel and entertainment flagged Middle East disruptions as a factor.

Energy costs remain the primary transmission mechanism. The US has reimposed sanctions on Iranian oil sales after this week's escalation, while Iran has threatened to target "all other export corridors that benefit the US and its allies." The Bab el-Mandeb Strait, where Houthi-allied forces have already demonstrated their ability to disrupt shipping, represents the next potential flashpoint. Crude and condensate flows through that waterway rose to 5.4 million barrels per day in Q1 2026, up from 3.7 million in Q1 2025, as shippers sought alternatives to Hormuz.

What Comes Next

The immediate question is whether the renewed fighting will remain contained or escalate into a broader campaign. Iran's leaders appear to believe the US is deterred from returning to full-scale war, but this week's bombing of Iranian bridges — the first strikes on civilian infrastructure since April — suggests the Trump administration's tolerance for escalation may be higher than Tehran anticipated. The last time the US struck Iranian infrastructure in April, oil prices surged 12% in the following week before settling.

For investors, the key variable is whether Iran's control of the Strait proves to be a diminishing asset. Gulf producers are investing heavily in new pipelines and alternative export routes to bypass Hormuz, while the crisis is accelerating electric-vehicle adoption globally. But any new infrastructure will remain within range of Iranian missiles and drones, and the regime has shown it can shut down shipping at will.

"The question is not if, but when, and whether anyone is prepared to stand with the Iranian people when it does," said Miad Maleki, a senior fellow at the Foundation for Defense of Democracies, referring to the likelihood of renewed protests inside Iran.

This article is for informational purposes only and does not constitute investment advice.