Zandi: Prolonged Iran Conflict Raises Risk Of U.s. Recession 

By Matt Valley

NASHVILLE — The odds of a U.S. recession will be “very high” if the hostilities currently playing out in the Middle East continue for another month and the price of West Texas Intermediate (WTI) crude oil remains above $100 per barrel, says Mark Zandi, chief economist at Moody’s Analytics. 

It would take an “extraordinary step” by the U.S. Congress and the Trump administration to avoid an economic downturn at that point, and the prescription would involve some form of deficit spending by the government to stimulate economic growth, adds Zandi.

The price of WTI crude oil was trading near $60 per barrel at the start of 2026 just before the U.S. and Israel launched airstrikes against Iran in late February. It’s now over $100 per barrel. (As of March 31, the price of WTI crude oil was trading near $103 to $104 per barrel.)

“That’s a $40 barrel increase in oil. Here’s a good rule of thumb: for every $10 increase in the cost of a barrel of oil, it raises the cost of the gallon of regular unleaded gas by 25 cents. So, if you go from $60 to $100, that’s a buck [increase] in gas. And that’s exactly what’s happened — from just under $3 a gallon to just about $4 a gallon,” explains the veteran economist. 

“For many folks in this room — high-income, high-net-worth individuals — that’s not by itself going to mean a whole lot. But for a lot of low- to middle-income Americans, that’s a big deal because they live paycheck to paycheck. And if they have to put more of their hard-earned cash into their gas tank, that means they have less to spend on everything else.”

The comments from Zandi came Monday during a one-on-one interview with Beth Mace, former chief economist and director of research at the National Investment Center for Seniors Housing & Care. The two took center stage at the Omni Nashville Hotel late Monday afternoon, capping the opening day of the 2026 NIC Spring Conference. 

The three-day event has attracted nearly 2,500 attendees, making it the largest spring conference to date for the nonprofit organization. And of those 2,500 attendees, 500 are first-time registrants.

How This Crisis Emerged

As part of Operation Epic Fury, U.S. and Israel launched wide-ranging strikes on Iran on Feb. 28, killing the country’s supreme leader Ayatollah Ali Khamenei. Dozens more senior figures in the Islamic Revolutionary Guard Corps (IRGC) were also killed, according to the BBC. The fighting escalated quickly, spreading to Lebanon, with casualties and damage mounting on all sides. 

Iran’s missile and nuclear programs posed a direct threat to U.S. forces in the Middle East, according to the Trump administration. Secretary of State Marco Rubio stated that the U.S. acted to preempt an anticipated Iranian retaliation against a planned unilateral strike by Israel, thereby aiming to minimize U.S. casualties. 

Iran has effectively blocked the Strait of Hormuz, one of the world’s busiest oil shipping channels, following the joint U.S.-Israeli strikes on Iran on Feb. 28. Most international commercial shipping is prevented from going through the strait, but Iran is allowing a very limited number of approved vessels to pass through.

No Easy Fix

The $60 per barrel price of WTI crude oil has long been viewed as the sweet spot, or point of long-run equilibrium, pointed out Zandi. “We’re not getting back to 60 bucks for a long time because even when this war ends and the Strait of Hormuz is opened up, there’s going to be a sizeable risk premium,” he added. 

More specifically, the insurance industry is going to demand a higher insurance premium on the tankers that pass through the Strait of Hormuz, said Zandi. Oil traders are also going to require a premium to guard against the possibility of the Iranians closing the strait in the future,

A Vexing Time

Zandi said there have only been a few times during his more than 35 years as an economist when he has been as unsure about the economic outlook as he is today. He cited the Y2K scare on the eve of the new millennium; the terrorist attacks on Sept. 11, 2001; the global financial crisis of 2007-2009 and the COVID-19 pandemic as other notable periods of great uncertainty.

“I’m going to sound ‘lugubrious’ — that means pretty dark,” reflected Zandi, as he considered the current macroeconomic outlook. He was quick to add that seniors housing is a bright spot because the industry holds “tremendous promise” due to highly favorable demographics and strong operational performance. He didn’t want that point to be lost on the audience when analyzing today’s macroeconomic picture.

Tough on Tariffs

Zandi, who has been a sharp critic of the tariff policies enacted by U.S. President Donald Trump over the past year, held firm on his position during his one-on-one interview with Mace.

“Broad-based tariffs like the ones [the president] imposed are a really bad idea. They lower growth and they raise inflation,” stated Zandi. “I defy you to find an economist — except for the ones in the [current] administration — that would say this is a good idea. It’s very clear it’s a bad idea that raised inflation.”

Not only does Zandi believe tariffs are a tax on consumers, but he also has been critical of Trump’s on-again, off-again trade actions with several countries, which he alleges makes it difficult for small business owners who need certainty for investment and planning purposes. Zandi should know. He was a small business owner as the co-founder of Economy.com, which Moody’s purchased in 2005.

However, proponents of strong U.S. tariff policies believe they provide leverage to force other countries to lower their own trade barriers. The goal is to achieve a fairer global free-trade environment, they point out, adding that U.S. tariffs lead to reshoring, primarily by making offshore manufacturing less cost-effective. The tariffs encourage companies to move production back to domestic soil to avoid high import taxes.

U.S. tariff revenue has surged to record levels following the implementation of the new trade policies. In fiscal year (FY) 2025, the U.S. government collected approximately $195 billion in customs duties, up 153 percent over the $77 billion collected in FY 2024. Customs duties accounted for 3.7 percent of total federal revenue in FY 2025, up from a historical average of less than 2 percent since 1980. 

Eye on Inflation

Officially, the Consumer Price Index (CPI) rose 2.4 percent year-over-year in February. But Zandi has been arguing for the past few months that the underlying inflation rate is closer to 3 percent once data collection disruptions caused by the government shutdown last fall are factored in. His analysis takes considers both government and proprietary data.

A year ago, the U.S. economy was trending toward a 2 percent rate of inflation, but now inflation is at 3 percent, partly due to the implementation of tariffs, insists Zandi. And that’s before the effects of the war with Iran are factored in.

“I do think in the next three to six months, we’re going to get inflation from the energy prices, and we’re also going to get inflation from the tariffs,” said Zandi.

AI: Inflation Accelerant

Artificial intelligence (AI) is adding to the inflationary pressures, according to Zandi. “We need the productivity gains from AI, but right now the AI is lifting demand more than it’s lifting productivity growth and supply.”

The significant capital investment in data centers and the large amount of money pouring into AI tech company stocks are evidence of this strong investor demand, he said.

Inflation around microchips, computer equipment and construction — particularly for high-tech facilities — is surging.

Taking all these factors into account in the U.S. economy, Zandi said the takeaway is clear: “We’ve got a lot of forces coming together right now that are causing inflation to rise.”

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