Trump Says Iran Will ‘Pay the Price'-Here's What War Costs Americans
The United States and Iran have entered a new round of intensive fighting as President Donald Trump vows the Islamic Republic “will have to pay the price” for “having taken too long to negotiate a deal” that would put an end to a war now approaching the four-month mark.
But while the effects of the conflict and a U.S. naval blockade are indeed wreaking havoc on the Islamic Republic’s economy, the costs of the conflict are also weighing heavily on consumers worldwide, including those in the United States.
Fresh evidence emerged Wednesday as the Consumer Price Index showed inflation rose 4.2 percent in May from a year earlier, the highest annual increase in three years. Energy prices were up 20.3 percent over the past 12 months, while gasoline prices surged 40.5 percent.
The figures have heightened concerns that a long-term conflict in the Middle East could fuel further inflationary pressures and weigh on economic growth at a time when U.S. consumers are already grappling with higher costs.
“The economic fallout of the Iran war is weighing increasingly heavily on U.S. consumers,” Mark Zandi, chief economist at Moody’s Analytics, told Newsweek. “The typical American household has had to spend $510 more because of the war, covering the higher costs of gasoline, diesel and jet fuel.”
An Unequal Burden
The heightened figures serve to undermine the Trump administration’s efforts to provide greater relief for U.S. taxpayers.
During his State of the Union address in February, delivered just days before authorizing joint military operations alongside Israel against Iran, Trump highlighted tax reforms designed to provide relief to working U.S. citizens and pointed to lower fuel costs as evidence of economic progress.
Trump’s endeavor bore some fruit. But much of the progress is being undone by the Middle East crisis, and it’s being felt in more pronounced ways by certain sectors of U.S. society.
“For context, the personal tax cuts this year have increased the typical refund check by less than $350,” Zandi said. “Of course, this financial burden is borne most heavily by low and middle-income Americans, as they devote a higher share of their budget to energy, than the well-to-do.”
“As the benefits of the tax cuts are increasingly in the rear-view mirror, the higher costs caused by the war will do more damage to the purchasing power of consumers and the broader economy,” he added.
The result is not only a squeeze on household finances but also a widening divide between those who can absorb rising costs and those who cannot.
“The hardest issue is that the economic aggregates mask growing inequality, and inflation is a regressive tax-it hits those who can afford it least the most,” Diane Swonk, chief economist at KPMG U.S., told Newsweek.
While higher-income households have largely continued spending, even “splurging,” supported by investment gains and stronger wage growth, Swonk said many lower- and middle-income strata are struggling to keep pace with rising costs.
“The economy adds up on paper to look better than it feels to the majority of Americans,” she said.
The crisis is actually the latest in a series of shocks testing the limits of U.S. economic resiliency. First prices plummeted with the seismic effects of the COVID-19 pandemic. Then just as markets sought to stabilize came the largest disruption since the 1970s in the form of Russia’s 2022 invasion of Ukraine and subsequent Western sanctions targeting Moscow.
The U.S.-Israeli war against Iran has brought yet another catastrophe for oil and gas. The burden is further multiplied across various sectors, from an energy-intensive AI sector boom to farmers fighting to keep up with fertilizer, chemical and fuel costs, adding to fears that the market may simply never be the same.
“To think that these shocks are just look-through events and that they’ll dissipate on their own is ignoring the experience of the last five years,” Swonk said. “The fact is context matters. We’re already seeing inflation becoming normalized and taking on a life of its own.”
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Behind the Numbers
Trump, despite mounting pressure, appears unfazed by the figures.
Asked by reporters in the Oval Office on Wednesday about his reaction to the economic outlook, he responded, “I love the inflation,” alleging that the U.S. had been secretly “taking out millions of barrels of oil” from the Strait of Hormuz. Once the war is over, Trump predicted, inflation “is going to come down like a rock.”
The correlation between the war, markets and consumer prices is undoubtable.
Betsey Stevenson, professor of public policy and economics at the University of Michigan who formerly served on the White House Council of Economic Advisers and chief economist to the Department of Labor, noted that gasoline prices had risen some 21 percent and energy 11 percent in March, upon the onset of the war.
While they continued to climb in April and May, they did so at a lower rate, Stevenson told Newsweek. “So, while the headline is that inflation is heating up to its highest pace in years, it is important to realize that the monthly rate is not what is increasing. It’s the 12-month average.”
“When we strip out food and energy and focus on core inflation, the rate in May was below that in April, indicating that businesses are reluctant to push a lot of the cost increases they are facing onto consumers,” Stevenson said. “Whether inflation accelerates in the future will be dependent on whether oil supplies continue to be restricted or become further restricted due to an escalation in the conflict.”
The impact of oil shocks on the U.S. economy has also evolved since past crises dating back half a century. The 1970s serve as a particularly notable example, when a boycott adopted by Arab members of the Organization of Petroleum Exporting Countries (OPEC) in response to U.S. support for Israel during the 1973 Yom Kippur War resulted in critical gasoline shortages in the U.S., followed by another major blow to markets when Iran’s monarchy was toppled in the 1979 Islamic Revolution.
Ryan Nunn, director of research for Yale University’s Budget Lab, described how “two important changes have occurred since the devastating oil shocks of the 1970s.”
“First, the U.S. uses less oil per dollar of economic output than it used to,” Nunn told Newsweek. “Economic growth in recent decades has skewed away from oil-intensive activities and fuel efficiency has improved.”
“Second, with the advent and adoption of fracking technologies, the U.S. produces much more oil than it used to,” Nunn said. “When we analyzed oil shocks that postdate these shifts, we found commensurately smaller macroeconomic effects of an oil shock, amounting to less than half a percentage point of real GDP growth after a year.”
At the same time, he pointed out, “the oil price shock is ongoing and felt by any American who goes to the pump.”
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The Longer, the Worse
That shock will only intensify the longer the war drags on.
“A larger or more-prolonged shock would have larger economic effects,” Nunn said. “One important unknown is the response of the Federal Reserve: if monetary policy is tightened to reign in prices, this would mitigate inflation but slow economic activity.”
Michael Pearce, chief economist at Yale University’s Budget Lab, said that the forecast for U.S. GDP growth had already been downgraded from 2.8 percent to 2.1 percent earlier this year.
But that’s assuming, he said, that a U.S.-Iran deal is reached by the end of next month, and pre-war levels of Strait of Hormuz traffic resume by the end of the year.
“In a prolonged conflict scenario where the return of shipping is pushed well into 2027, we think oil prices could reach $150 and in that scenario U.S. consumers would come under more strain, there would be a risk of knock on supply chain impact that would worsen the hit to growth and boost to inflation, and a more forceful correction in equity prices could weigh heavily on the spending power and willingness to spend by higher income households, who have driven much of the resilience of the us economy in recent years,” Pearce told Newsweek.
“We’re still far from a recession,” Pearce said, “but we think the economy would grow sluggishly in that environment.”
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This story was originally published June 11, 2026 at 1:00 AM.