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How Times Have Changed: The Impact of the 2026 Iran War on the U.S. Economy

Author

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  • Kilian, Lutz
  • Plante, Michael D.
  • Richter, Alexander W.

Abstract

The 2026 IranWar 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.

Suggested Citation

  • Kilian, Lutz & Plante, Michael D. & Richter, Alexander W., 2026. "How Times Have Changed: The Impact of the 2026 Iran War on the U.S. Economy," CEPR Discussion Papers 21650, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21650
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    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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