AP Business Writer, Matt Ott
Israel’s attack on Iran on Friday has been hit by the possibility of their long-term conflict becoming a broader, more dangerous regional war, which could raise prices for both businesses and households.
Oil and gold have skyrocketed, and the dollar rises as markets recede, indicating that flights to investments are perceived as safer.
After years of high air inflation in the aftermath of the Covid-19 pandemic, Americans have become increasingly unstable about the economy this year due to President Donald Trump’s cleaning fees, but the impact so far has subsided.
The latest escalation in the Middle East could lead to widespread price increases that could bring consumers back.
Let’s take a look at some of the sectors that could face a major impact from the Middle East escalation and what it means to consumers.
Energy
Oil prices have skyrocketed on Friday since the start of Russia’s Ukrainian war began more than three years ago. It is not entirely clear if Israel’s attacks on Iran could affect gas prices, or if it has declined for nearly a year.
Iran is one of the world’s leading oil producers, but sales are limited due to sanctions by Western countries. If a wider war breaks out, Iran’s oil flow could be significantly slower or flow to customers. Energy prices are being curtailed this year due to relatively high production and low demand for it. The expansion of competition could lean that balance.
“This loss in export supply will wipe out any surplus expected for the fourth quarter of this year,” an ING analyst wrote in a note to the client.
In the past, conflicts in the Middle East have long raised energy prices, but in recent years, their spikes have become more fleeting due to the vast supply of oil.
Earlier this month, the countries of OPEC+ Alliance decided to increase production again. They reached their lowest level in four years in early May. It usually means cheaper gas, and there is currently a surplus.
The average price of gasoline in US gallons on Friday was $3.13 per gallon, compared to $3.46 a year ago, according to the Automobile Club organization AAA.
Shipping
Shipping costs have already increased for a number of reasons. Cargo has been re-routed around the Red Sea, and the US has begun airstrikes in Yemen’s Houtsis. Yemen’s Houtis is an Iran-backed rebel force that was attacking ships on important world trade routes. And this year, businesses have challenged to import as many goods as possible before Trump’s tariffs began and push demand and prices onto the ship.
The Baltotidry Index, an important indicator of dry bulk transport that suppresses movement of coal, iron ore, grains, has reached an eight-month high.
The windows of businesses looking to ship items before the end of the year are approaching the end of this month. The growing conflict in the Middle East will only raise prices as these companies bounce back to acquire goods from overseas as geopolitical tensions in the region rise.
Following the Israeli attacks, stocks in marine carriers such as Teekay and Frontline rose sharply.
Consumer goods
The higher the energy price, the higher the cost of a wide range of products, as almost everything is made and transported using oil or natural gas.
Government data revealed this week that Trump’s tariffs are not causing a wider rise in inflation. Still, many companies have announced prices rise due to tariffs. Walmart has already raised prices for some products and said it will do so again when the return to school shopping season begins. JM Smucker said it was primarily due to the impact of tariffs on coffee in Brazil and Vietnam, and would do so again with price hikes. Analysts say that prices will almost certainly rise further, coupled with higher shipping and production costs that could arise from the escalation of conflict in the Middle East.
“The inventory buffer may have allowed companies to postpone their decisions on price hikes, but that’s not the case for much longer,” ING analysts said. “We expect to see a big spike in monthly inflation numbers through the summer,” they added, saying the Fed’s recent Beige book has already cited extensive reports of aggressive price increases in the pipeline.
Federal Reserve System
Federal Reserve officials will meet next week to make their next interest rate decision. The majority of economists believe the US Central Bank will leave the benchmark rate for four consecutive times. The Fed has juggled its dual mission to support the labour market while keeping inflation at bay. The Israeli-Iran conflict can make that goal even more difficult to achieve with gas, food and other essentially rising prices.
When prices rise, Fed officials tend to increase their benchmark rates, increasing borrowing costs for businesses and consumers. It could lead to companies cutting jobs, particularly in the growing tech sector, leading Americans to pull back spending.
Stocks in tech companies and retailers were one of the biggest drops on Friday.
trip
Perhaps one of the cascade effects of rising tensions in the Middle East, contrary to traditional wisdom, is that travel costs will be lower, even if fuel prices rise.
Airlines are downgrading travel forecasts as businesses and families tighten their travel budgets in anticipation of tariff-related price increases. Several major air disasters are also wary of flying.
Most major US airlines say they plan to reduce domestic flights scheduled this summer. Last month, Bank of America reported that credit card customers spend less on flights and accommodation.
And the dollar fell almost 10% this year when measured against a basket of foreign currency due to Trump’s tariff war.
On Friday, shares of major US airlines retreated sharply.
Original issue: June 13th, 2025, 2:20pm EDT
