Oil Nears $100: Trump’s Failed Iran Gamble Unleashes Havoc
WAR BLOWBACK HITS WEST
NEW YORK — Oil prices pushed toward $100 a barrel on Monday as the widening U.S.-Iran war intensified fears of a prolonged energy shock, while record American fuel prices and accelerating European inflation exposed the economic costs of a war that Washington has been unable to bring to a close.
Brent crude rose about 1.3% to around $97.50 a barrel, leaving it roughly 35% above its February level, while U.S. West Texas Intermediate approached $93.
The latest advance came as military confrontations around the Strait of Hormuz disrupted tanker traffic and heightened fears that an already fragile oil market could face a deeper supply squeeze.
Reuters reported that diesel prices have also surged, adding pressure to transportation and manufacturing costs and increasing the likelihood of further interest-rate increases.
The Financial Times reported Monday that Brent had moved above $98, with analysts warning that an intensification of attacks on shipping routes could push crude toward $120 a barrel.
Oil reserves outside China have fallen by more than 400 million barrels since the unprovoked terrorist war by the U.S. and Israel began, while disruptions to refineries in the Persian Gulf and Russia have compounded the shortage of refined products.
Diesel prices have risen above the price of crude itself, an indication of how severely the war is affecting the downstream market.
The immediate impact is already visible in the United States. American gasoline prices reached a record for Labor Day, with the national average around $4.15 a
gallon, while diesel climbed to roughly $5.85-$5.90, also a record.
The higher diesel price is particularly damaging because diesel powers a large share of freight transportation and agricultural machinery, meaning the shock can spread well beyond the fuel pump into food, manufacturing and retail prices.
An analysis released Monday by Axios, citing Brown University’s Watson School, estimated that the war has already imposed about $100 billion in additional energy costs on U.S. consumers, equivalent to more than $760 per average household since the conflict began on Feb. 28. The estimate puts the cost of the continuing energy shock at roughly $1 million every two minutes.
That burden arrives at an awkward moment for the U.S. economy. The latest official consumer-price data available before Friday’s August report showed headline inflation at 3.4% in July, with energy prices already up 14.7% from a year earlier and gasoline prices 24.6% higher.
Core inflation was lower at 2.5%, underscoring that the immediate danger is not a generalized inflation explosion but the possibility that an energy shock will push increasingly broad categories of prices higher.
Academic research helps explain why that distinction matters. A National Bureau of Economic Research study by Luca Gagliardone and Mark Gertler found that oil-price shocks can make inflation both larger and more persistent, particularly when oil is an important input for households and firms.
Their analysis of the U.S. inflation surge found that oil shocks, combined with monetary conditions, played a major role in the persistence of inflation.
Another NBER study by Adrien Auclert, Hugo Monnery, Matthew Rognlie and Ludwig Straub finds that energy-price increases can depress real household incomes and cause recession in energy-importing economies.
The research also warns that monetary tightening alone has limited power against imported energy inflation, creating a particularly unpleasant choice for central banks: tolerate higher prices or tighten policy and risk further weakening demand.
That dilemma is becoming acute in Europe.
Eurozone inflation climbed to 3.3% in August, its highest level since September 2023, with energy prices rising more than 14% from a year earlier. The European Central Bank is now widely expected to raise its deposit rate by 25 basis points to 2.5% this week.
Reuters reported Monday that economists generally regard the move as an “insurance” increase, but further tightening is far less certain because higher rates could compound the damage to economic growth.
European markets reflected that tension on Monday. The STOXX 600 was broadly flat, while oil-related shares gained and broader sectors struggled with the renewed inflation threat.
Bond yields rose in several major European markets as investors reassessed how long central banks may need to maintain restrictive monetary policy.
Reuters described the market as caught between unexpectedly resilient growth and a renewed energy shock that threatens to undermine that resilience.
The European problem is structural as well as immediate. The European Central Bank has previously concluded that the Iran war disrupted oil supply more severely than the Russia-Ukraine energy shock did, although inventories, alternative supply routes and reduced demand initially absorbed much of the damage.
But those buffers are finite. The ECB warned that the longer the disruption continues, the more difficult it becomes to prevent energy costs from feeding into broader inflation.
The International Monetary Fund has reached a similar conclusion. Its July assessment said the oil market had absorbed the initial shock through inventory drawdowns, additional production outside the Persian Gulf and reduced demand, but warned that much of that spare capacity had already been consumed.
By late May, more than 1.1 billion barrels of crude equivalent had failed to reach the market, a shortfall exceeding those recorded at comparable stages of the 1973 oil shock, the Iran-Iraq war and the Persian Gulf War.
The danger, therefore, is not simply an expensive barrel of oil. It is a feedback loop. Higher crude prices lift gasoline and diesel costs; expensive diesel raises freight and agricultural costs; higher transportation costs feed into food and manufactured goods; inflation forces central banks toward tighter policy; higher interest rates weaken investment and household demand; and slower growth makes it harder for governments already carrying heavy debt burdens to cushion consumers.
New NBER research by Kristin Forbes, Jongrim Ha and M. Ayhan Kose is particularly relevant. Their 2026 study finds that global shocks have become increasingly important drivers of inflation and output in advanced economies.
Compared with domestic shocks, global supply shocks have more persistent effects on inflation and are more likely to produce periods in which central banks are forced to tighten rather than ease policy.
For Washington, the contradiction is increasingly difficult to conceal. President Donald Trump entered the war with an economic argument that pressure on Iran could force a rapid strategic outcome.
Instead, six months into the war, the United States is confronting oil near $100, record diesel prices, renewed inflation pressure and greater uncertainty over the Federal Reserve’s next move.
Monday’s markets underscored the problem. Strong U.S. employment data have already increased expectations of tighter monetary policy, while the oil shock is simultaneously pushing prices higher.
That is the classic policy bind of stagflation: higher prices combined with weaker growth and less room for monetary relief. Reuters reported that markets are now assigning greater probability to rate increases in both the United States and Europe.
Criticism of Trump’s broader strategic course has also grown beyond the immediate oil market. A recent Foreign Policy analysis argued that Washington risks learning the wrong lessons from the war, while the Council on Foreign Relations warned earlier that the U.S. economy entered the war with existing vulnerabilities and that the combination of inflation, interest rates and prolonged war could turn those weaknesses into a much more serious economic problem.
Financial-market analysts have meanwhile begun questioning whether investors have underestimated the duration of the war.
The Financial Times reported Monday that commodity funds are turning more bullish as stockpiles decline and refining disruptions persist, while analysts see $120 oil as a plausible scenario if attacks on shipping routes intensify.
The market is increasingly pricing not simply a temporary geopolitical premium but the possibility that some energy trade routes will not quickly return to their prewar condition.
That possibility would transform the economic consequences of Trump’s policy. A prolonged war produces something much more damaging: a persistent increase in the cost of energy, transportation, food and capital.
The irony is that the United States, despite being a major oil producer, is not insulated from such a shock. Fuel markets are global, and American consumers compete for refined products in a market increasingly strained by disruptions from the Persian Gulf and elsewhere.
Record diesel prices demonstrate that domestic production alone cannot shield the U.S. economy from a breakdown in global energy logistics.
The economic verdict is therefore becoming less about whether the war has produced an immediate recession and more about how much additional damage Washington is willing to absorb in pursuit of an uncertain military and political outcome.
For Europe, the consequences are already appearing in inflation and interest-rate expectations. For American households, they are appearing at gasoline pumps and in the cost of transporting goods. For financial markets, they are appearing in oil prices, bond yields and renewed fears of monetary tightening.
And with Brent again approaching $100 a barrel, Monday’s trading offered a stark warning: the longer the war continues, the more Trump’s Iran policy risks turning an overseas war into a sustained cost-of-living and monetary-policy crisis at home and across America’s European allies.
The higher diesel price is particularly damaging because diesel powers a large share of freight transportation and agricultural machinery, meaning the shock can spread well beyond the fuel pump into food, manufacturing and retail prices.
An analysis released Monday by Axios, citing Brown University’s Watson School, estimated that the war has already imposed about $100 billion in additional energy costs on U.S. consumers, equivalent to more than $760 per average household since the conflict began on Feb. 28. The estimate puts the cost of the continuing energy shock at roughly $1 million every two minutes.
That burden arrives at an awkward moment for the U.S. economy. The latest official consumer-price data available before Friday’s August report showed headline inflation at 3.4% in July, with energy prices already up 14.7% from a year earlier and gasoline prices 24.6% higher.
Core inflation was lower at 2.5%, underscoring that the immediate danger is not a generalized inflation explosion but the possibility that an energy shock will push increasingly broad categories of prices higher.
Academic research helps explain why that distinction matters. A National Bureau of Economic Research study by Luca Gagliardone and Mark Gertler found that oil-price shocks can make inflation both larger and more persistent, particularly when oil is an important input for households and firms.
Their analysis of the U.S. inflation surge found that oil shocks, combined with monetary conditions, played a major role in the persistence of inflation.
Another NBER study by Adrien Auclert, Hugo Monnery, Matthew Rognlie and Ludwig Straub finds that energy-price increases can depress real household incomes and cause recession in energy-importing economies.
The research also warns that monetary tightening alone has limited power against imported energy inflation, creating a particularly unpleasant choice for central banks: tolerate higher prices or tighten policy and risk further weakening demand.
That dilemma is becoming acute in Europe.
Eurozone inflation climbed to 3.3% in August, its highest level since September 2023, with energy prices rising more than 14% from a year earlier. The European Central Bank is now widely expected to raise its deposit rate by 25 basis points to 2.5% this week.
Reuters reported Monday that economists generally regard the move as an “insurance” increase, but further tightening is far less certain because higher rates could compound the damage to economic growth.
European markets reflected that tension on Monday. The STOXX 600 was broadly flat, while oil-related shares gained and broader sectors struggled with the renewed inflation threat.
Bond yields rose in several major European markets as investors reassessed how long central banks may need to maintain restrictive monetary policy.
Reuters described the market as caught between unexpectedly resilient growth and a renewed energy shock that threatens to undermine that resilience.
The European problem is structural as well as immediate. The European Central Bank has previously concluded that the Iran war disrupted oil supply more severely than the Russia-Ukraine energy shock did, although inventories, alternative supply routes and reduced demand initially absorbed much of the damage.
But those buffers are finite. The ECB warned that the longer the disruption continues, the more difficult it becomes to prevent energy costs from feeding into broader inflation.
The International Monetary Fund has reached a similar conclusion. Its July assessment said the oil market had absorbed the initial shock through inventory drawdowns, additional production outside the Persian Gulf and reduced demand, but warned that much of that spare capacity had already been consumed.
By late May, more than 1.1 billion barrels of crude equivalent had failed to reach the market, a shortfall exceeding those recorded at comparable stages of the 1973 oil shock, the Iran-Iraq war and the Persian Gulf War.
The danger, therefore, is not simply an expensive barrel of oil. It is a feedback loop. Higher crude prices lift gasoline and diesel costs; expensive diesel raises freight and agricultural costs; higher transportation costs feed into food and manufactured goods; inflation forces central banks toward tighter policy; higher interest rates weaken investment and household demand; and slower growth makes it harder for governments already carrying heavy debt burdens to cushion consumers.
New NBER research by Kristin Forbes, Jongrim Ha and M. Ayhan Kose is particularly relevant. Their 2026 study finds that global shocks have become increasingly important drivers of inflation and output in advanced economies.
Compared with domestic shocks, global supply shocks have more persistent effects on inflation and are more likely to produce periods in which central banks are forced to tighten rather than ease policy.
For Washington, the contradiction is increasingly difficult to conceal. President Donald Trump entered the war with an economic argument that pressure on Iran could force a rapid strategic outcome.
Instead, six months into the war, the United States is confronting oil near $100, record diesel prices, renewed inflation pressure and greater uncertainty over the Federal Reserve’s next move.
Monday’s markets underscored the problem. Strong U.S. employment data have already increased expectations of tighter monetary policy, while the oil shock is simultaneously pushing prices higher.
That is the classic policy bind of stagflation: higher prices combined with weaker growth and less room for monetary relief. Reuters reported that markets are now assigning greater probability to rate increases in both the United States and Europe.
Criticism of Trump’s broader strategic course has also grown beyond the immediate oil market. A recent Foreign Policy analysis argued that Washington risks learning the wrong lessons from the war, while the Council on Foreign Relations warned earlier that the U.S. economy entered the war with existing vulnerabilities and that the combination of inflation, interest rates and prolonged war could turn those weaknesses into a much more serious economic problem.
Financial-market analysts have meanwhile begun questioning whether investors have underestimated the duration of the war.
The Financial Times reported Monday that commodity funds are turning more bullish as stockpiles decline and refining disruptions persist, while analysts see $120 oil as a plausible scenario if attacks on shipping routes intensify.
The market is increasingly pricing not simply a temporary geopolitical premium but the possibility that some energy trade routes will not quickly return to their prewar condition.
That possibility would transform the economic consequences of Trump’s policy. A prolonged war produces something much more damaging: a persistent increase in the cost of energy, transportation, food and capital.
The irony is that the United States, despite being a major oil producer, is not insulated from such a shock. Fuel markets are global, and American consumers compete for refined products in a market increasingly strained by disruptions from the Persian Gulf and elsewhere.
Record diesel prices demonstrate that domestic production alone cannot shield the U.S. economy from a breakdown in global energy logistics.
The economic verdict is therefore becoming less about whether the war has produced an immediate recession and more about how much additional damage Washington is willing to absorb in pursuit of an uncertain military and political outcome.
For Europe, the consequences are already appearing in inflation and interest-rate expectations. For American households, they are appearing at gasoline pumps and in the cost of transporting goods. For financial markets, they are appearing in oil prices, bond yields and renewed fears of monetary tightening.
And with Brent again approaching $100 a barrel, Monday’s trading offered a stark warning: the longer the war continues, the more Trump’s Iran policy risks turning an overseas war into a sustained cost-of-living and monetary-policy crisis at home and across America’s European allies.