US recession odds rise as Iran war escalates

 Experts and financial institutions are warning that as the economic fallout from the Iran war continues to reverberate on the home front, chances are rising of the U.S. sliding toward a recession.

RecessionPulse, which aggregates dozens of indicators to assess the current health of the U.S. economy, reports that the “recession risk score” has climbed to 44 out of 100, classified by the website as “elevated.”

“Recession risks are uncomfortably high and rising due to the hostilities with Iran, severe disruptions in global energy production, and surging oil and other commodity prices,” Mark Zandi, chief economist at Moody’s Analytics, told Newsweek this week.

Zandi added that the odds of a downturn were “already high prior to the conflict,” and said these could “cross the key 50 percent threshold unless the conflict ends in the next few weeks, if not days.”

Why It Matters

As well as the human toll and the direct war expenditures, the Iran war has already carried significant economic consequences globally, primarily in energy markets but also across American equities. All three major U.S. stock indexes have sunk by over seven percent in the last month, while the price of oil continues to approach levels last seen during the 2022 energy crisis.

What To Know

Despite hopes of reproachment, both Washington and Tehran have shown little movement, with Iran publicly dismissing Trump’s 15-point framework to wind down hostilities this week, while submitting its own proposal. Iran’s five-point plan outlined an end to the conflict provided certain conditions are fulfilled, including reparations for damage caused by the war so far and for the U.S to recognize its sovereignty over the Strait of Hormuz.

On Thursday, Trump, who previously suggested the two sides were close to an agreement, said that Tehran’s “strange” negotiators “better get serious soon.”

“They better get serious soon, before it is too late, because once that happens, there is NO TURNING BACK, and it won’t be pretty!” the president posted to Truth Social.

And while Trump has said he has little appetite for involving U.S. ground forces, thousands of troops are being deployed to the region, with reports that an additional 10,000 could soon follow.

Amid these escalations, analysts at Goldman Sachs this week raised the probability of a recession within the next year to 30 percent from, according to Fortune.

Behind these rising risks are the ongoing threats to energy supplies, with surging oil prices feeding through into business costs, consumer spending and inflation expectations.

“Every recession since World War II, save the pandemic recession, has been preceded by a spike in oil prices,” Zandi wrote in a recent blog.

“Higher oil prices do not do the same economic damage as in years past, because the U.S. produces as much as it consumes,” he added. “But consumers still get hit hard and fast while producers invest and hire more only slowly, if at all, waiting to make sure the higher prices are here to stay.”

Such fears have translated into broad-based declines in consumer confidence, according to the University of Michigan’s latest survey, which revealed that short-run sentiment around the economy “plunged 14 percent” in March, as year-ahead inflation expectations climbed to 3.8 percent from 3.4 percent in February.

What People Are Saying

Abbas Araghchi, Iran’s foreign minister, in remarks made on state TV and translated by Al Jazeera, said: “At present, our policy is the continuation of resistance and the continuation of defending the country. We do not intend to negotiate. So far, no negotiations have taken place.”

EY-Parthenon chief economist Gregory Daco told CBS News: “The combination of tighter financial conditions, more uncertainty and higher inflation is going to erode growth. We’ve curbed our growth forecast down and increased the odds of recession on the basis that if this conflict becomes more severe or prolonged, then you would see a more visible risk of a downturn in the economy.”

What Happens Next

On Wednesday, BlackRock CEO Larry Fink said he could see the conflict resolving in one of “two very extreme outcomes”: A sustained period of “abundance and growth,” or the world sliding into a “stark and steep” global recession marked by oil prices soaring to $150 a barrel.

But amid these warnings, the administration has talked down the economic consequences of the Iran conflict.

During a cabinet meeting on Thursday, Trump said the oil and stock market reactions had been less significant than expected.

“I thought the stock market would go down more. Hasn’t been nearly as severe as I thought,” Trump said, later adding that energy costs were “all going to come back down to where it was and probably lower.”