As President Donald Trump prepares to head to China for crucial negotiations with the leader of the No. 2 global power, it is becoming clear that the political and economic damage unleashed by the Iran war can’t be easily left behind. Even if a deal to get oil tankers moving again were reached tomorrow — and there is little sign of that — Americans are facing the prospect of months or more of new inflation worries.
The question now isn’t whether Trump secure his war aims with dignity. It is whether his presidency can ever recover from the war’s body blow.
Trump is banking little political goodwill from the stock market that keeps grinding to new records. The S&P 500 has risen 7.3% since Feb. 27, just before the U.S. and Israel attacked Iran. Meanwhile Trump’s net approval rating has fallen to the lowest of his two terms, according to CNBC’s All-America Economic Survey.
Stocks are rising on faith in artificial intelligence and traders’ well-earned sense that Trump will find a way to get out from under major economic risks. But the market is fragile and could fall apart if the disruption continues, analysts with JPMorgan wrote in a note sent to clients Monday.
“A temporary shock, even a large one, can be absorbed. A prolonged disruption cannot,” the analysts wrote.
The analysts conclude that because the mounting damage is so severe, Iran or the U.S. will back off by June. That is a reasonable bet for a Wall Street firm to make, given Trump’s prominent decisions to back off on threats over tariffs and Greenland, for instance.
But the judgment that the pain will get so intense one side has to back off has grim implications for Americans already struggling to pay at the pump — not to mention Trump’s political standing.
Oil prices are — counterintuitively — relatively low at the moment, given the scale of the supply disruption. Global benchmark Brent crude futures hit $104 a barrel Monday, up 44% since the start of the war but still below the highs sparked by Russia’s invasion of Ukraine in 2022.
A gallon of gas cost $4.50 on average in the U.S. on Tuesday, up 44% compared to last May. Diesel is up 61%.
Iran has shut the Strait of Hormuz, the narrow passageway that tankers need to transit to reach the Persian Gulf, where they can fuel up in Saudi Arabia and other Middle Eastern energy giants. The closure has meant a fifth of the world’s oil supplies can’t get through the normal routes.
Those countries have gone to great strides to get oil moving again. But there is only so much they can do, Amin Nasser, CEO of the world’s largest oil producer, Saudi Aramco, said on an earnings call Monday.
“If the current disruptions continue at this rate, the market will lose around 100 million barrels for every week the Strait of Hormuz remains closed,” Nasser said.
Countries have been able to tap into existing oil inventories to keep their economies stocked with refined products like gasoline and jet fuel. But those stockpiles may be “critically low” by this summer, Nasser said.
“If the Strait of Hormuz opens today, it will still take months for the market to rebalance. And if its opening is delayed by a few more weeks, then normalization will last into 2027,” Nasser said.
That doesn’t account for the time it might take to clear mines Iran may have left in the strait, he said.
Iran’s ambassador to China Reza Rahmani Fazli in a Tuesday post on X pressed Tehran’s case with Beijing, saying that the relationship between the two is too strong for the U.S. to overcome.
The bottom line is that higher energy prices are baked in for the foreseeable future. The price of crude oil makes up about half of the cost of a gallon of gas, according to the Energy Information Administration.
And U.S. elections are less than six months away. The 2026 midterm elections will be a crucial referendum on Trump and the Republican Party as they seek to retain a lock on both chambers in Congress.
State and federal taxes account for another 18% of gas prices — the reason Trump is pushing for a federal gas-tax holiday. Pausing the tax would likely require action by Congress, and if it succeeded could blow back on Americans in other ways. The U.S. Treasury estimates the government will borrow $2 trillion dollars next year to fund the deficit, while the stock of debt rose this month past the psychological threshold of 100% of gross domestic product. Also, gas taxes primarily fund highway maintenance — and every local politician could tell the president that potholes are politically unpopular.
Cutting taxes while debt rises amid a costly war would likely put pressure on long-term Treasury yields. The 10-year Treasury note rose to 4.4% Tuesday. It is the benchmark for great swaths of consumer debt, and a higher 10-year means more expensive rates for mortgages, car loans, and credit cards. A rising 10-year also threatens the stock market, because it gives investors a way to get risk-free returns from the government.
In other words, there is little Trump can do in the short run to get himself out of the affordability bind the Iran war has created. It will be inescapable for Republicans in the midterms, and will color every choice Trump makes going forward.
All that will be the backdrop for Trump’s negotiations with Chinese leader Xi Jinping after Air Force One lands Wednesday. Xi has his own problems, but public opinion bites far less severely in a dictatorship than it does in the U.S. Xi can extract a high price if Trump asks for his help ending the Iran war.
Or perhaps Xi will simply sit and wait and watch the economic turmoil grow. But in the ever-more zero-sum world Trump has helped make a reality, the U.S. will pay the cost of the Iran war, one way or another.
