U.S Economy Was Bad Before the War With Iran

U.S. Economy Was Vulnerable Before War With Iran

When the U.S. chose to get involved in a military conflict with Iran in early 2026, the conflict sparked instant fears about the possibility of increased oil prices, inflation rates, and economic instability in the world. Economists say that the U.S. economy was in a weakened state before the first missiles were ever fired. The rate of growth, coupled with high inflation rates and poor investments in the U.S., created an unstable economy. “The US economy was on shaky footing even before President Donald Trump plunged the United States into a war with Iran, a battery of new data released Friday showed,” according to CNN News.

Slowing Growth Beneath the Surface

One of the most obvious warning signs came in revised economic figures released just prior to a further escalation in the conflict. In revised figures released by the Commerce Department, economic growth in the United States in the fourth quarter of 2025 came in at a sluggish 0.7%, a far slower rate than previously estimated, or 1.4%.

It was a marked slowdown from the 4.4% growth rate in the third quarter of 2025, implying that economic growth was losing steam as 2025 came to a close. Economists cited a number of factors for the slowdown, including a decrease in government spending as a result of a prolonged federal shutdown and a decrease in exports.

Consumer spending, however, still continued, although at a slower rate than previously in 2025. While still a positive sign, economists were concerned about a decrease in consumer spending, which is one of the largest drivers of economic growth in the United States.

Economic growth in 2025 came in lower than previously estimated, reflecting a growing economy that was still expanding, although at a slower rate.

Inflation Still Above Target

Another concern that was present before the conflict was the inflation rate. Though the rate at which prices were rising in the economy was declining from the rates that were experienced during the COVID-19 period, prices were still rising at a rate that was greater than the target rate set by the Federal Reserve.

The Personal Consumption Expenditures (PCE) measure of inflation, which is the target measure for the Federal Reserve, revealed that core inflation was increasing by 3.1% per annum in early 2026. On the other hand, the monthly rate at which prices were rising in the economy was still high.

Therefore, the Federal Reserve did not have the flexibility to reduce the rates in the economy in order to boost growth since such a policy would result in an increase in the inflation rate. ““It basically shows that inflation firmed up to start the year,” Omair Sharif, founder of the research firm Inflation Insights, said of the data. “All the key measures are moving in the wrong direction,” according to The New York Times.

The combination of a high inflation rate and a declining growth rate created a situation in which the economy could experience stagflation. Stagflation is a situation in which the economy is characterized by a declining growth rate and an increasing inflation rate.

Weak Investment and Business Confidence

Business investment was another area that was not impressive in the pre-war economy. Reports had shown that orders for durable goods had been flat while manufacturing investment had slowed.

There was also caution among businesses regarding investing in production or employing workers. Some economists had argued that the uncertainty regarding trade policies was also influencing business confidence.

Exports had also declined towards the end of 2025 due to weakened international demand.

However, the job market also showed signs of slowing down. The rate of job growth had slowed considerably in 2025 compared to previous years.

Energy and Cost-of-Living Pressures

Yet another source of economic stress was beginning to appear even before the conflict with Iran: increasing energy costs.

Analysts had been predicting that electricity and gas prices would be rising due to increasing demand for electricity, increasing data center infrastructure, and a supply glut in the energy supply chain.

The increased cost of utilities and fuel can have a ripple effect on the economy as a whole. For many people in the US, the cost of living was a pressing issue. Polls showed that people remained pessimistic about the economy even though it was growing overall.

War Adds New Economic Risks

The war against Iran has only increased all these existing weaknesses. The Middle East is an important region in the world in terms of energy supplies. Any issues in the region’s shipping routes can impact energy prices.

The Strait of Hormuz is an important shipping route in the region. One-fifth of the world’s oil and liquefied natural gas shipments pass through the strait. The strait is therefore an important energy chokepoint.

When there is a threat in the region’s energy supply routes, energy prices tend to increase globally. Increasing energy prices mean that gasoline prices, air tickets, and shipping costs will increase.

Consequently, inflation will increase. The ongoing war and its escalation can impact the economy by reducing economic growth. Economists have indicated that the war can reduce consumer spending and investments.

A Delicate Economic Moment

The timing of the conflict couldn’t be more sensitive for the US economy.

On the one hand, the resilience of consumer spending is a positive, as is the stable contribution of the service sector to economic growth. On the other, underlying indicators suggest that the US economy was already losing momentum before the conflict started.

With the US economy slowing down and inflation running too high, policymakers face a difficult trade-off. Higher interest rates can tackle the problem of inflation, but may precipitate a recession. Conversely, lower interest rates can boost growth, but may add to the upward pressure on prices.

The Federal Reserve now has to balance these trade-offs with the economic impact of the conflict.

Uncertain Path Ahead

The key to whether the U.S. economy can absorb the shock of the Iran conflict will be the duration of the war and the degree to which the global energy supply is impacted.

A brief war may have only a minor impact on the economy. A protracted war, however, may exacerbate inflation, slow growth, and affect business and consumer confidence.

One thing is for certain: The U.S. entered the crisis with an economy that was already experiencing structural challenges, making the geopolitical shock all the more impactful than it would have been during a better economic time.

By David Loran Jr

A successful Editor-in-Chief, journalist for over 6 years, writing about important topics that are going on within the U.S. and beyond.

Sources:

CNN News: The US economy grew just 0.7% last quarter, ahead of a potentially destabilizing war with Iran

The New York Times: U.S. Economy Was Vulnerable Before War With Iran

Featured Image Courtesy of CassadeyFedel’s Flickr Page – Creative Commons License

Inset Image Courtesy of Mike Lawrence’s Flickr Page – Creative Commons License