US Recession Risk Nears 50% on Iran Conflict

Catenaa, Friday, March 27, 2026- Recession risks in the United States are climbing sharply as ongoing conflict in Iran continues to pressure oil markets and disrupt global supply chains, Moody’s Analytics and other economists said Wednesday.

Analysts now estimate nearly a 50% chance of an economic downturn within the next 12 months, citing rising energy costs, weakening labor indicators, and geopolitical instability.

Moody’s chief economist Mark Zandi raised the firm’s recession outlook to 48.6%, while Goldman Sachs estimates a 30% probability and EY-Parthenon puts it at 40%. Baseline projections had previously ranged between 15% and 20%. The spike follows the US-Israeli military action in Iran at the end of February, which analysts say may be a tipping point for the economy.

The US labor market shows early signs of strain. February payroll data revealed a loss of 92,000 jobs, contradicting forecasts for a 60,000 increase. Overall employment gains in 2025 totaled only 181,000. Unemployment has edged toward 4.5%, up from 3.4% three years ago, while wage growth is slowing for lower-income households.

Rising oil prices have compounded economic concerns. Brent crude averaged near $97 per barrel and spiked to $115 per barrel last week. Zandi warned that oil averaging $125 per barrel in the second quarter could push the US into recession.

Supply disruptions are tied to the partial closure of the Strait of Hormuz, a critical passage for roughly one-third of global fertilizer exports. Analysts say fertilizer and energy cost hikes could increase grocery prices and affect US crop decisions.

The International Energy Agency noted the scale of current disruptions exceeds the 1970s oil shocks, citing a global loss of 11 million barrels daily. IEA Executive Director Fatih Birol compared the crisis to two oil crises and one gas crisis combined. Rising fuel prices already reflect in US consumer costs, with gasoline climbing by $1 per gallon.

Economists emphasize the potential for cascading effects. Higher energy prices increase production costs across agriculture, manufacturing, and transportation.

Ricky Volpe, an agricultural economist at Cal Poly, highlighted the link between energy price spikes and food inflation, warning of sustained pressure on household budgets.

Policy uncertainty also weighs on the outlook. Zandi stressed that without diplomatic resolution, including US and Iranian de-escalation, recession risk will remain elevated. Market responses to postponed strikes and negotiations have temporarily eased oil prices, but analysts caution this relief is fragile.

Financial markets have already reacted to uncertainty. Investors are closely monitoring inflation data, Treasury yields, and corporate earnings for signs of a slowdown. Some economists warn that delayed monetary policy responses could worsen the recession impact.

The combination of high energy costs, geopolitical instability, and labor market weaknesses creates a complex economic landscape. Analysts say proactive measures, including targeted energy policy and global diplomacy, could mitigate the worst effects, but the probability of contraction remains substantial.

Before the February US-Israeli action in Iran, US economic growth was already slowing. Labor market gains lagged expectations, and inflation persisted in key sectors. Historical parallels to the 1970s oil shocks highlight the potential for rapid consumer price increases, while disruptions to fertilizer and global shipping could amplify these pressures.

Rising recession probabilities may affect corporate investment, consumer spending, and interest rate expectations. Energy-intensive industries, agriculture, and import-dependent sectors are particularly vulnerable. Analysts warn that sustained high oil prices could trigger wider inflationary pressure, slowing economic recovery and influencing Federal Reserve policy.

Zandi described recession odds as “very high” unless hostilities ease. Volpe noted the direct connection between energy price shocks and consumer food costs.

Birol emphasized that global decision-makers may underestimate the breadth of economic disruptions stemming from Middle East tensions.

The US economy has experienced uneven growth since 2024, with labor participation rates and wage growth lagging historical trends. Previous oil crises in the 1970s contributed to stagflation, influencing policy responses including rationing and monetary tightening.

Current disruptions in the Gulf, particularly through the Strait of Hormuz, echo past vulnerabilities but occur in a highly interconnected global energy market. Economists warn that failure to address supply chain interruptions could magnify recession risks in 2026.