Three weeks into the U.S.-Iran war, the initial economic impact of the conflict is visible in America every few miles on the highway: soaring gas prices.
On Saturday, nationwide unleaded gas prices hit $3.93 a gallon on average, according to AAA. That was up from $2.98 a gallon on Feb. 26, two days before the U.S. and Israel attacked Iran.
This 24% surge over just three weeks was triggered by rising oil prices — the result of an Iranian blockade of the Strait of Hormuz. During peacetime, around one-fifth of the world’s oil supply transits through the narrow shipping chokepoint off Iran’s southern coast.
The U.S. is facing a potential “short-term affordability shock,” wrote Joe Brusuelas, chief economist at RSM.
“That will restrain consumption and growth,” he wrote in a client note. “Even if it does not cause an end to the business cycle, it will take a toll on the economy.”
As the war enters its fourth week, there are fresh signs of how and where the conflict could cut into Americans’ financial security next.
‘Nice-to-have’ purchases
During the second week of March, gasoline spending was up more than 14% year over year, according to newly released data from the Bank of America Institute — a signal that higher prices at the pump are taking up a larger share of household budgets.
“This rise in gasoline spending could potentially dampen consumers’ ability to spend on ‘nice-to-have’ or discretionary categories,” the Bank of America economists wrote.
This year, the average U.S. household will spend an additional $740 on gas because of the jump in oil prices, according to economists from the Stanford Institute for Economic Policy Research.
This is roughly double the $360 average boost so far to individual households’ federal tax refunds as a result of tax law changes. While economists predict that figure will rise by the end of filing season, it still won't equal as much as higher gas prices will cost.
Investment and retirement funds
More than half of all American adults own stocks, many through retirement accounts and mutual funds. So while it’s true that the very wealthy own more stock than the middle class, a huge swath of the American public is impacted by the performance of the stock market.
After several weeks of the U.S. outperforming other countries’ indexes since the Iran war started, this week the losses began to mount on Wall Street as it became clearer that both the U.S. and Iran are preparing for a drawn-out fight.
On Friday, stocks sold off sharply as headlines about the war weighed heavily on market sentiment and led major indexes to their fourth straight weekly decline.
For the S&P 500 and Nasdaq Composite, the last four weeks have been their worst four-week period since April 2025, when President Donald Trump triggered a global sell-off by announcing his “Liberation Day” tariff agenda.
The Nasdaq Composite fell 2% Friday. For the year, it’s now down 6.8%. The benchmark S&P 500 also tumbled, ending down 1.5% for the day and 4.9% this year. The Dow slid 443 points Friday, putting it down 5.2% for the year.
Mortgage rates
A third place the Iran war is poised to take an even bigger financial toll on Americans is in the mortgage market.
The average interest rate on a 30-year fixed mortgage has climbed a full half point since the war began, from just under 6% the day before the U.S. attacked Iran, to 6.53% on Friday.
The higher mortgage rates add another layer of pressure on would-be homebuyers just as the peak real estate season of the year gets underway.
Just a month ago, investors were expecting the Federal Reserve to cut its fed-funds interest rate at least once, if not twice this year, a move that would influence interest rates overall and indirectly drive down the cost of buying a home.
But now, growing fears of inflation caused by higher gas prices that in turn drive up the costs of shipping, food and heating are shifting expectations.
The odds of a rate cut were already slipping away Wednesday after the Federal Reserve’s meeting in Washington.
Fed keeps interest rates steady as oil prices soar
But on Friday, future market trading revealed that not only are the odds of rate cuts shrinking, but the odds that the Fed will vote to raise interest rates before the end of year to tamp down on inflation reached 50%.
Contributing to those rising odds were comments from Fed governor Christopher Waller, who said that he had initially planned to advocate for a rate cut at Wednesday’s meeting, but the Iran war changed his mind.
“This is looking like it’s going to be a much more protracted conflict, and oil prices are going to stay high for a longer time," Waller said on CNBC. "So that suggested inflation was more of a concern.”
Waller was nominated to the Fed by Trump in 2020, but the concern he aired about a longer war in Iran fueling inflation runs counter to the administration’s message.
Trump has pressured Fed board members for years to lower interest rates, arguing this would increase economic growth. At the Fed’s meeting in January, Waller voted to cut interest rates by a quarter point, dissenting from the majority of the Federal Open Market Committee, which voted to hold them steady.
Coupled with the shifting expectations of the market about interest rates, Waller's comments underscore how much the war has changed the trajectory for the U.S. economy in just three short weeks.
Consumer sentiment
It’s not just investors and policymakers who are shifting their outlooks in response to the Iran war.
When the war began at the beginning of March and the cost of daily life began to rise sharply, Americans quickly turned sour on their own finances, new data shows.
Consumer sentiment hit its lowest reading of the year in March, according to the latest survey result from the University of Michigan, released Friday.
What was most notable about this survey wasn’t the number, however. It was the sharp divide between prewar sentiment and everything after Feb. 28.
Surveys taken before the war “showed an improvement in sentiment from last month,” wrote Joanne Hsu, the university’s director of surveys of consumers.
“But lower readings seen during the nine days thereafter completely erased those initial gains,” she added.
Currently, there are no signs that any of these financial hits are going to get better before they get worse.
One of the challenges for people who live far away from a global conflict, yet who feel its immediate financial impacts, is coming to terms with the ongoing uncertainty about what’s going to happen next, and with their lack of control over any of it.
This week in Washington, Federal Reserve Chair Jerome Powell revealed that when it comes to predicting the war’s future impact on the economy, he is in the same boat as everyone else.
“The thing I really want to emphasize is that nobody knows,” Powell said Wednesday. “The economic effects could be bigger, they could be smaller, they could be much smaller or much bigger. We just don’t know.”
