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Stocks are down. Oil is up. Bond yields are up. And most people are just trying to figure out what is actually going on.
I thought about a few different approaches for this post. Historical geopolitical conflicts and stock returns. How the new Fed Chairman might navigate this. But I kept coming back to the same idea: the biggest economic impact this war will have on the average American is the price of oil, and what that might do to the rate of inflation.
Iran is a major oil exporter, so the war alone puts upward pressure on prices. But the bigger issue is the Strait of Hormuz. Iran has effectively shut it down while simultaneously attacking Arab state oil infrastructure. 20% of the world’s oil normally passes through this narrow waterway every single day. So, production is being negatively affected, and what’s still being produced can’t leave the Gulf. Oil supply is essentially getting squeezed from both ends. Brent Crude has already jumped to over $80 per barrel (albeit not quite as high as some strategists feared).
Before I get into what this actually means for the economy and your investments, a quick personal note.
The Iranian People
I have a bit of a personal stake in this war, as my father immigrated from Iran to the U.S. during the 1979 Revolution. He was born in Tehran under the Pahlavi monarchy, only to see his country transformed into an Islamic theocracy after Khomeini’s coup. Yes, I am half Persian (I know, I don’t look it). I was adopted, and as a result, my name changed from Mehran Bonakdar to Ryan Hughes.
My dad came to the U.S. to escape the extremism that the new regime exhibited. He married my mother, and they actually moved back to Iran for about a year before returning to the U.S., where I was born. Over the years, my father flew back to Iran often to visit his family, only to see his country inexorably decline. During his last visit in late 2025, he saw that most Iranians hated the current regime and were desperate for change. There were few jobs. Hyperinflation made almost everything out of reach. Crime was skyrocketing. Corruption was spreading. The divide between the rich and the poor continued to widen. The everyday Persian was suffering and desperate for relief. They didn’t care where help came from, just as long as it came.
I don’t know what the end result of this war will be. But I hope it is resolved sooner rather than later. And I hope the Iranian people will finally be able to live in a country that values peace and freedom.
On Forecasting
I am not a military strategist, and even if I were, I would probably have no idea what the end result of all of this would be. There are too many factors to consider. How long will the Strait of Hormuz be disrupted? Will the Gulf states play a more active role in attacking Iran now that they have been attacked? How is China going to respond now that its oil supply has been disrupted (from both Iran and Venezuela)? Does the U.S. have enough munitions to maintain a prolonged engagement?
Who knows.
If you’ve ever read Superforecasters, then you know that expert forecasters, including military strategists, perform poorly on their predictions. Remember in 2022 when Russia invaded Ukraine? Military experts said that Kyiv could fall in 72 hours, and that a full Russian victory could occur in a few days to a few weeks.
Juuuust a bit outside.
So, take any forecast with a grain of salt. Nobody knows how the Iranian conflict will end. A lot can change in a short period. There are an infinite number of factors at play. I am simply going to outline what is currently happening and how it could affect everyday Americans.
The Strait of Hormuz
When I was in the U.S. Navy, I remember standing on the flight deck of my ship, looking to my left at Oman and to my right at Iran. The Strait of Hormuz is only 21 miles wide, and 20% of the global oil supply passes through this narrow gap on a daily basis. It is easily one of the most important waterways in the world. And as of Monday, March 2nd, nearly all shipping traffic has ceased.
Iran’s Revolutionary Guard threatened to “set those ships ablaze” if any ship tries to pass through the Strait. It has already attacked 4 ships. In response, international insurers cancelled all of their policies for any ships that are near Iran. So, if any ship attempts to sail through the Strait, it will do so without insurance (which no reasonable shipmaster is willing to do).
President Trump stated that U.S. Navy ships could escort ships through the Strait. This has been done before (keeping shipping lanes open in the Gulf is one of the core reasons for our naval presence there), but I don’t know how feasible it would be for 3,000+ tankers waiting. I suspect that, with our sea and air power, we will reopen the Strait soon. But again, forecasting and its effectiveness…
Oil Infrastructure Attacks
Iran has also been firing on its Middle Eastern neighbors, hitting Qatari and Saudi Arabian oil refineries and infrastructure. One attack targeted Saudi Aramco’s Ras Tanura refinery, which serves as the kingdom’s main departure point for crude exports to Asia. In the past, Saudi Arabia has resisted entering into military conflicts, but as Iran continues to target their oil facilities, it may have no choice but to retaliate.
These attacks on oil infrastructure and the closure of the Strait of Hormuz affect Europe and Asia far more than they affect the U.S. The U.S. does not rely on Middle Eastern oil the way Europe and Asia do, largely thanks to fracking. The U.S. is technically energy independent (even though we still import oil) and is actually a net oil exporter these days.
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In the 1970s, there were two major recessions due to oil supply shocks. Today, the U.S. economy is far different and more diversified, so I don’t think a similar supply shock will have the same effect. Will an oil supply shock negatively impact the U.S. economy? Yes. But not as much as it used to.
Gas & Inflation
Today, the average American spends about 3% of their income on gasoline. It’s just not a major part of someone’s spending share. A $10-per-barrel increase in oil prices will only push up gasoline prices by roughly $0.10–$0.15 per gallon. (Source: U.S. Energy Information Administration) However, gasoline prices are always at the forefront of people’s minds. Driving from your home to work and back again, you might see 5–10 different gas stations, all of which advertise their prices in big bold numbers. And if you’re paying $70 to fill up your tank one week, only to pay $90 the next, it’s a quick reminder of how volatile gas prices can be.
But the real threat of oil supply shocks is not just the cost to fill up your car. It is the rise of inflation.
It is estimated that a 5% increase in oil prices will raise inflation by 0.1%. (Source: IMF) This sounds small, but when the cost of everything rises in aggregate and compounds over time, it adds up.
The price of oil, and its increase over time, will be reflected in the prices of everything else downstream. How oil prices affect other downstream prices is sort of like how important flour is to a bakery. It goes into just about everything. Flour is used to make cakes, breads, pastries, etc. If the cost of flour goes up, so does the cost of those cakes, breads, and pastries. The bakery will want to maintain its profit margin, so it will simply raise the prices of its goods and pass along the increased costs to the end consumer. Energy is the same. It is embedded in just about everything. The cost to manufacture items, the cost to ship them, the cost to store them, etc. Everything. If oil prices increase (and stay elevated), business margins will shrink. They will pass along these higher costs to the end consumer to protect their margins.
What Should You Do?
We don’t know whether this conflict will be short-lived or if it will be drawn out. If it is short-lived, then that is obviously a best-case scenario. If it is drawn out, then oil prices will probably remain elevated. Inflation will run higher, which will be a drag on the global economy.
If you are a long-term investor (and properly invested), then none of this matters. You should stick to your plan and stay the course. Markets price in uncertainty quickly, and they have a fantastic track record of recovering just as quickly from geopolitical shocks. Remember, fear is one of the Investor’s 4 Deadly Sins. Selling into fear has historically been a losing strategy.
And to be clear, the market has performed admirably, all things considered. The S&P 500 is only down 2% from its all-time high! 10 years from now, if I told you to point to when the Iranian conflict began on a S&P 500 chart, you probably couldn’t do so.
Either way, turn off the news and stop scrolling once in a while. The situation is serious, but panicking has never been a good strategy. If you have questions about how this affects your portfolio, don’t hesitate to reach out.
