Moody’s Warns Trump: Deal or Real Trouble Ahead

By Staff, Agencies

A prolonged war with Iran could heighten economic pressures on the United States by pushing energy prices higher, with economists warning that sustained oil market disruptions may raise recession risks.

Speaking to Bloomberg on Friday, Moody's Analytics chief economist Mark Zandi said the US economy has limited time to avoid the consequences of sustained increases in crude oil and gasoline prices.

According to Zandi, financial markets are hoping that a diplomatic breakthrough with Iran will help ease pressure on global energy markets and reverse the recent surge in oil prices.

"It would have to happen very quickly - in the next day, two days, three days, next week or so," the economist said of a possible peace agreement with Iran. "After that, I think we're going to have a real problem."

Oil prices have climbed amid concerns that escalating regional tensions could disrupt global supplies, particularly if shipping routes in the Gulf are affected. Analysts have focused on the Strait of Hormuz, a key transit corridor for international oil exports.

Zandi warned that persistently high fuel costs could begin to weigh heavily on American consumers, reducing spending and slowing economic activity. He identified gasoline prices exceeding $5 per gallon as a critical threshold that could trigger broader economic consequences.

The economist also pointed to shrinking US oil reserves, noting that the country's Strategic Petroleum Reserve recently stood at 365 million barrels, its lowest level in roughly two years, according to data from the US Energy Information Administration.

In addition to fuel prices, Zandi said crude oil reaching more than $125 per barrel would be another warning sign that recession risks are intensifying.

The concerns came as reports indicate Tehran may suspend negotiations and take measures affecting maritime traffic if its demands are not addressed.

Iranian news agency Tasnim reported Monday that Iran intends to halt talks and block the Strait of Hormuz until key conditions are met, particularly if "Israeli" attacks on Lebanon continue.

The report added to market anxiety, helping drive oil prices higher at the start of the week. Brent crude and US benchmark crude both rose by about 7% on Monday morning.

Markets later eased after Trump said a ceasefire understanding had been reached between "Israel" and Lebanon, helping oil prices fall back below $95 a barrel.

HFI Research warned that prolonged disruptions could lead to a major oil supply shock, cautioning that global supplies may fall to critically low levels if the Strait of Hormuz remains closed through June.

However, recession risks remain uncertain, with the Federal Reserve Bank of New York estimating a roughly 17% chance of a US recession within the next year as of late April.