CFO survey shows firms absorbed 66% of Iran war oil shock

Most US companies absorbed the energy cost spike from the Iran war rather than passing it to customers, a Federal Reserve survey shows.

Most US companies absorbed the energy cost spike from the Iran war rather than passing it to customers, a Federal Reserve survey of 530 chief financial officers found, countering stagflation fears that gripped markets last spring.

"While firms impacted by higher oil prices have only passed through a portion of the increased costs, should oil prices rise further and remain elevated, that pass-through increases to roughly 90 percent," said Brent Meyer, an economist at the Federal Reserve Bank of Atlanta.

Roughly two-thirds of CFOs said elevated energy prices drove their firm's unit costs higher, but only about one-third raised the prices they charge. Financial executives added 1.1 percentage points to their 2026 unit cost and price growth projections and lowered expectations for real gross domestic product growth over the next four quarters to 1.8 percent, from 2.1 percent in the prior survey. Under a scenario where oil averages $120 a barrel through year-end, average expectations for unit cost and price growth would jump to 7.3 percent and 6.7 percent, respectively.

The findings suggest corporate margins face a sustained squeeze if oil prices stay elevated — and that the inflation pass-through that hasn't happened yet could arrive quickly if the Iran conflict escalates again. The survey was fielded from May 18 to June 5, before mediators announced a memorandum of understanding on June 14 intended to bring the war to a formal close within 60 days. The Strait of Hormuz, which handles about 21 percent of global oil trade, had been largely shut to shipping since late February.

Why Firms Are Absorbing Costs

The gap between cost increases and price increases — roughly two-thirds of firms hit by higher energy costs but only one-third raising prices — implies a direct hit to profit margins. The last time US companies faced a comparable energy supply shock was the 2022 Russia-Ukraine war, when West Texas Intermediate crude briefly topped $130 a barrel. In that episode, corporate margins held up initially as demand remained strong, then compressed as the Federal Reserve raised rates 525 basis points over 16 months.

The current dynamic differs in one critical respect: demand has not collapsed. CFOs reported little impact on their firm's demand from the energy spike, suggesting the economy entered the shock with enough momentum to absorb the hit without triggering a recession. The Atlanta Fed's GDPNow tracker had been pointing to growth above 2 percent before the conflict escalated in late February.

What Happens Next

The ceasefire remains fragile. Iran has signaled it intends to impose tolls on ships using the Strait of Hormuz regardless of any final peace deal, and energy analysts warn a full normalization of Middle Eastern energy exports is unlikely before mid-to-late 2027. The CFO survey's scenario analysis makes clear that sustained $120 oil would change corporate behavior: pass-through would rise from roughly 33 percent today to about 90 percent, adding 6.7 percent to consumer prices at the firm level.

For the Federal Reserve, the implications are significant. If companies begin passing through energy costs broadly, the inflation impulse that policymakers have been waiting to fade could re-emerge, complicating any plans to ease monetary policy. The survey was conducted jointly by Duke University's Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

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