War, Oil, and Recession

Since the early 2000s, recessions have been rare and driven more by financial shocks and policy disruptions than by classic Fed tightening, raising the odds that the next downturn could again come from an external shock. The escalating Iran conflict and risks around the Strait of Hormuz now put oil at the center of that threat, with prices already climbing sharply and some scenarios pointing to a potential spike toward $200 per barrel. Such a move would strain global consumers and markets, yet the US—now a net petroleum exporter—is better positioned to absorb higher prices than in past oil shocks.

For advisors and investors, this environment argues for careful attention to energy exposure, supply-chain vulnerabilities, and regional risk while recognizing that higher prices would also boost domestic producers’ incomes. The key monetary risk is not the oil shock itself but how the Federal Reserve responds; if it eases aggressively to cushion consumers rather than holding steady, relative price shifts could morph into broader inflation pressures that reshape asset valuations.