Iran war is pushing US to its economic limits. How long can it fight on?

The war between the US, Israel, and Iran, now in its fifth week, is hitting the global economy hard. Its effects will likely last for decades. The world is experiencing the largest oil supply shock in history, triggered by the closure of the Strait of Hormuz and strikes on energy infrastructure in the Middle East. But while much of the world has begun rationing oil, gas, and fertilisers, the situation in the US is markedly different.

As of late March, the US has spent more than $18 billion on the conflict with Iran, with daily costs averaging roughly $1 billion, primarily driven by expensive missile defence interceptors and munitions. The first six days alone accounted for an estimated $11.3 billion. The Pentagon has requested an additional $200 billion to sustain operations. The US State Department has also released substantial funding to the Board of Peace, drawing from existing aid budgets.

The idea of "American Exceptionalism" once suggested the US was uniquely insulated from global conflicts by its geography and resources. Coined in the 1920s, the concept predates today's highly interconnected and interdependent world. While the war has raised US fuel prices noticeably, several factors might allow America to avoid the worst economic fallout, unlike much of the rest of the world, which is now bearing the brunt of a conflict the US helped initiate.

THE ECONOMIC MIGHT OF THE US

If the world were a Walt Disney production and all the countries were different characters, the US would be perfectly cast as Scrooge McDuck.

Just as Scrooge is fabulously wealthy, America remains the world's dominant economic powerhouse. Its nominal GDP reached approximately $30.6 trillion in 2025, with real GDP expanding 2.1% for the full year. The economy has shown resilience since the Covid-19 recovery, and forecasts point to continued, if moderating, growth. S&P Global Ratings projects 2.2% real GDP growth for 2026, followed by an average of around 1.9% annually through 2027–2029.

This economic might directly underwrites the US military's titanic budget. The FY2026 Department of Defence request called for roughly $848.3 billion in discretionary funding and $113.3 billion in mandatory funding, for a total of about $961.6 billion. Even as the conflict with Iran drains resources, costing the American exchequer around $1 billion a day, the US has the sheer economic scale to absorb the hits.

While the war has battered currencies like the Euro and Yen, the US dollar has strengthened since late February 2026. The Dollar Index (DXY) has climbed from February lows near 96-97 and has frequently traded near or above 100, posting some of its strongest gains in months. Heightened global risk aversion has driven investors toward dollar-denominated assets amid fears of prolonged energy disruptions. Brent Crude, surging toward $115 per barrel, has boosted inflation expectations, potentially delaying Federal Reserve rate cuts and widening US interest-rate advantages.

According to a report by Reuters, major oil-price spikes tend to favour the dollar, especially since the US is now a net energy exporter overall (though still a net importer of crude oil itself). This relative insulation, compared to heavy importers in Europe and Asia, has helped the greenback reclaim its safe-haven role. In short, while other currencies like the Rupee, the Euro, the Yen and others have weakened amid the oil shock, the dollar has gained ground.

But not everything is sunshine and roses. The Iran conflict is expected to slow US job growth, which has already been on thin ice. For reference, the US economy added a grand total of 116,000 jobs in 2025,compared to 121,000 in 2024, with unemployment at 4.4%. According to Goldman Sachs via Fortune, the oil-price shock could suppress payroll additions by roughly 10,000 jobs per month through the end of 2026, with hospitality and retail sectors hit hardest.

Yet America's enormous economic scale and structural strengths, in the form of deep capital markets, technological edge, and diversified base, continue to provide a buffer that few nations can match.

Scrooge may grumble about the costs, but his vault remains deep enough to weather the storm (and maybe swim in it).

THE US'S OIL ADVANTAGE

Across the world, countries are implementing increasingly stringent measures to ration oil and gas consumption as flows of petrochemicals through the Strait of Hormuz have slowed to a trickle. These steps include releasing strategic petroleum reserves, slashing taxes on petrol and diesel, promoting EVs and public transport, imposing quotas on fuel sales, and even reducing workdays in some cases.

The US public, however, remains relatively insulated from the most severe impacts. While much of Asia and Europe rely heavily on imports through the disrupted Strait of Hormuz, the US benefits from greater domestic self-sufficiency in hydrocarbons.

The US is the world's leading producer of both crude oil and natural gas, making it the top overall hydrocarbon producer globally. In 2025, the US produced a record average of approximately 13.6 million barrels per day (bpd) of crude oil and 118.5 billion cubic feet per day (Bcf/d) of marketed natural gas.

The war in Iran and the resulting spike in global oil prices are expected to further incentivise US production.

According to the Energy Information Administration's (EIA) Short-Term Energy Outlook, higher prices have led to an upward revision in forecasts: US crude oil output is now projected to average 13.6 million bpd in 2026 and rise to 13.8 million bpd in 2027 (an increase of about 220,000 bpd for 2027 compared to prior estimates).

This environment is also reaping big rewards for Big Oil. According to a report by Reuters, firms like Chevron, ExxonMobil, and others have revised profit forecasts significantly upward, by as much as 40% in some cases, due to elevated crude prices.

However, this does not mean ordinary American consumers are entirely shielded from the effects.

Although the US produces more than enough oil and gas to meet its own needs on paper, its refining system creates structural dependencies. A large portion of US refining capacity, particularly along the Gulf Coast in Texas and Louisiana, is optimised for processing heavier, more viscous crudes (such as those sourced from Venezuela, Mexico, or Canada).

In contrast, most domestically produced US crude is lighter "tight oil" from shale plays, which is less ideal for these refineries without blending or adjustments. As a result, the US continues to import significant volumes of heavy crude even as it exports lighter grades.

The US has been a net exporter of total petroleum (crude oil plus refined products) since 2020. In 2025, net crude oil imports fell to around 2.2 million bpd (down from 2.5 million bpd in 2024), while crude exports averaged about 4 million bpd. Overall, petroleum net exports were positive, estimated at around 2-3 million bpd.

Because the US remains integrated into the global oil market, surges in international prices are still transmitted domestically. The conflict has driven the benchmark West Texas Intermediate (WTI) crude above $100 per barrel in recent trading (cheaper than Brent, which has approached or exceeded $115), contributing to higher pump prices. As of late March 2026, the national average for regular gasoline stands at approximately $3.98 per gallon, while diesel has climbed to around $5.30–$5.35 per gallon, reported CBS News.

The US may still be swimming in oil like Scrooge McDuck diving into his money vault, but for ordinary Americans, the rising prices at the pump are beginning to hurt.

WILL US RIDE OUT THE WAVE, OR FEEL THE PINCH?

America's vast economic might, record oil and gas production, and the dollar's safe-haven strength give the US significant buffers that most nations lack.

US' massive domestic energy output and net petroleum exports help cushion the blow compared to Europe and Asia, which rely far more on disrupted Middle East supplies.

Despite the shock due to the war, its GDP growth is also expected to remain strong, supported by resilient consumer spending and a diversified economy. The US can absorb $1 billion in daily military spending more easily than smaller economies.

However, the pinch is real, especially for the commoners.

Gasoline prices near $3.98 per gallon are squeezing household budgets, while Goldman Sachs estimates the oil shock will reduce payroll growth by about 10,000 jobs per month, mainly in hospitality and retail, pushing unemployment slightly higher toward 4.6%.

Prolonged conflict and sustained high energy costs could feed inflation, slow consumer spending, and crowd out other fiscal priorities.

But in the end, American Exceptionalism ensures the US, even if no longer immune to the trappings of the rest of the world, remains resilient.

The US is better placed than most to ride out the wave that was unleashed by the Trump Administration's war against Iran, but it will not escape completely unscathed.

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