The energy crisis isn’t recessionary yet, but there’s a scenario where oil prices could bring the US economy to a ‘standstill,’ Oxford Economics says

<h1>The energy crisis isn’t recessionary yet, but there’s a scenario where oil prices could bring the US economy to a ‘standstill,’ Oxford Economics says</h1>
<p>The war in Iran has sparked a global energy crisis that has rocked markets and sent oil prices surging to their highest level in four years. The chances of a quick resolution appear to be deteriorating as the conflict escalates, as do hopes that the U.S. economy might escape unscathed.</p>
<p>The war has effectively blocked off the Strait of Hormuz, a vital energy corridor that links oil and gas producers in the Persian Gulf with the rest of the world. The closure has cut off the roughly 20 million barrels of oil that normally flow through the strait each day, according to the International Energy Agency. The IEA estimates the conflict is removing roughly eight million barrels daily from the global supply, making the crisis the <a href="https://fortune.com/2026/03/13/middle-east-energy-crisis-could-outlast-the-iran-war/">biggest oil supply disruption in history</a>. Oil prices have been on a rollercoaster as a result. Brent crude, an international benchmark that cost around $70 a barrel before the war, <a href="https://fortune.com/2026/03/09/dow-nasdaq-sp-all-falling-as-oil-spikes-briefly-over-120-per-barrel/">grazed $120</a> last week and has since settled between $90 and $100.</p>
<p>The swings have already caused gasoline prices for U.S. drivers to rise, but it might not be enough to force the severe downturn some economists have warned of. Price levels so far might only have a marginal impact on economic output over the long run, according to a <a href="https://www.oxfordeconomics.com/resource/iran-war-scenarios-the-oil-price-that-breaks-parts-of-the-economy/">report</a> published Friday by Oxford Economics, an advisory firm.</p>
<p>But that scenario rides on a relatively quick return to pre-war price levels over the next few months. The longer the strait remains closed and the higher prices rise, the faster the economic situation around the world—including in the U.S.—deteriorates.</p>
<h2>Breaking parts of the economy</h2>
<p>Oxford Economics uses a standard rule of thumb to estimate the economic impact of pricier oil: Every time oil gets $10 more expensive for a sustained period—determined to be around two months—it amounts to a 0.1% decline in GDP due to higher inflation and slower growth. If prices average $100 for two months, it would erase a few tenths of a percentage point of global GDP growth, but a recession would likely be avoided, according to the report.</p>
<p>The breaking point for the economy, Oxford Economics found, will be if oil prices average around $140 a barrel for two months. At that price, spillover effects would be much harder to contain, and many parts of the world would be flirting with economic decline.</p>
<p>“There are mild contractions in the Eurozone, the UK, and Japan, while the U.S. nears a temporary standstill and layoffs push up the unemployment rate, leaving it close to a recession,” the report’s authors wrote.</p>
<p>The problem with calculating the economic consequences of higher oil prices is that the implications are exponential. The more prices rise, the more knock-on effects could happen to hurt the economy. Higher-for-longer oil and transportation costs would begin to spill over into food and other goods, making inflation an across-the-board problem rather than a primarily fuel and energy-focused one. The Federal Reserve and other central banks would also be more inclined to tighten their interest rate policy if it became clear oil prices would remain high, dampening down economic activity.</p>