How Times Have Changed: The Impact of the 2026 Iran War on the U.S. Economy
Abstract: The 2026 Iran war has raised the question of how exposed the U.S. economy is to geopolitical oil supply disruptions. It is widely believed that the U.S. economy has become less vulnerable to such disruptions as it has reduced its dependence on oil and changed from a major net oil importer to a net oil exporter. We develop a two-country model of the global economy with large geopolitical oil supply disruptions that distinguishes between the U.S. economy and the rest of the world. We find that the response of U.S. real GDP growth to the disruption in global oil supplies today is only one-twentieth of what it would have been in 1980. Moreover, the response of U.S. real GDP growth today is only one-sixth of the decline in the rest of the world.
DOI: https://doi.org/10.24149/wp2615
Appendix DOI: https://doi.org/10.24149/wp2615app