Noah Smith
· Noahpinion
· March 25, 2026 at 14:01
· ⏱ 9 min read
| Read on Substack ↗
Summary
The Iran war and closure of the Strait of Hormuz have caused a significant spike in oil and LNG prices, but the U.S. economy is likely to suffer only modest damage (inflation rising ~1.25 percentage points, GDP growth falling ~1.5 percentage points) based on modern economic resilience. The real pain is concentrated in Asia and poor countries, while U.S. consumer sentiment and Trump's approval have already worsened, making the war a self-inflicted wound with no clear geopolitical gains.
•The Strait of Hormuz carries about 20-25% of global oil and LNG flows; Iran's closure has caused a 50% spike in oil prices.
•Blanchard and Gali (2007) estimate that a 10% oil price rise now leads to only a 0.25 percentage point CPI increase and 0.3 percentage point GDP reduction, implying 1.25 ppt inflation and 1.5 ppt GDP loss from this shock.
•Känzig and Raghavan (2025) study of shipping chokepoints shows little impact so far; shipping costs have not increased since the war began.
•Gasoline in the U.S. hit $4/gallon, while Asia faces far worse: India has fuel line panic, the Philippines declared a national emergency, and Australia is considering rationing.
•90% of oil and gas transiting the Strait of Hormuz is bound for Asian countries, making the region the hardest hit.
•Consumer sentiment in the U.S. is very low, and Trump's economic approval has plummeted since the war started, though the author cautions against wishing for economic pain purely for political backlash.