Title: How War With Iran Could Affect the US Economy

[MUSIC]

Amina: It's The Brian Lehrer Show on WNYC. I'm Amina Srna, a producer for The Brian Lehrer Show, filling in for Brian today. Coming up on today's show, we're going to talk about the growth of data centers in New York and Governor Kathy Hochul's proposal for who should pay for the massive amount of energy they use. In recent elections, these data centers have become a hot topic as voters blame them for the increase in their energy bills. We'll take a closer look at what Governor Hochul is proposing and how it could affect your bills.

Plus, Caitlin Dickerson from The Atlantic will be my guest later in the show. She's a Pulitzer Prize-winning immigration reporter. We'll get her take on the news that President Trump has fired Department of Homeland Security Secretary Kristi Noem. Her most recent story is about a New York family with mixed immigration status that decided to move to Mexico, where one member of the family was from, rather than deal with the stress of President Trump's deportation campaign. They self-deported, basically.

We'll wrap today's show with a conversation about Ramadan. We're going to talk about the diversity of the Muslim community in the United States, and for our Muslim listeners, we're going to invite you to share your traditions during this holy month.

First, as the war with Iran continues to intensify, we begin with the cost of war. First, the human cost, mostly felt in the Middle East. Since the United States and Israel launched their coordinated attacks on Iran on Saturday, at least six American service members have been killed. All of them were killed Sunday in an attack on a port in Kuwait. More than 1,000 civilians have been killed in the first 5 days of the US-Israeli bombings of Iran, including 181 children under the age of 10. That's according to the US-based human rights activists' news agency.

The price of war could be paid by Americans as well. US oil prices traded up to $82 a barrel Thursday afternoon after United Kingdom maritime monitors reported that oil tankers were being attacked in the Strait, with one leaking oil. That's according to POLITICO. All of this coming in ahead of the midterm elections, of course. Until recently, oil prices have been a bright spot for the Trump administration, registering declines as President Trump took office.

Joining us now to discuss how the war in Iran has impacted and might continue to impact the affordability crisis here in the United States is Lydia DePillis, New York Times reporter covering the American economy. Her latest for The Times is titled, "How War in the Persian Gulf Could Spill into the US Economy." Lydia, welcome back to WNYC.

Lydia: Good to be here.

Amina: Listeners, we know oil prices impact us not only individually at the pump, but also in so many different consumer industries. If you felt the impact in any way this week, call and tell us your stories. 212-433-WNYC, that's 212-433-9692. As we'll discuss, gas prices also rose back under the Biden administration in 2022. Maybe you want to reflect on your lifestyle or industry and how it was impacted back then, and what you're bracing for now, or any comments or questions you may have for our guest, New York Times economy reporter Lydia DePillis. 212-433-WNYC, that's 212-433-9692. You can also text that number.

All right. Catherine Rampell from The Bulwark wrote in her newsletter yesterday, "Trump's 'warflation' has just begun." That's because a lot of the world's oil passes through the Iranian-controlled Strait of Hormuz. Lydia, what can you tell us about the immediate impact on that shipping route when the war began?

Lydia: That shipping route is completely closed. That matters because about 20% or 25% of the world's oil does need to transit through it to get from refiners and producers in the Persian Gulf, that's Kuwait and Qatar and Iran, to the rest of the world. Iran has said, and in fact, yesterday did set a ship on fire, that they will not allow any ships to transit through there safely. Also, the reason that boats are not even trying it is that because they can no longer get insurance, which they need in order to sail, basically.

That chunk of the world's oil supply has been totally cut off, and so oil prices are still rising. I guess they hit $90 a barrel today. I don't know if they'll settle there. The impact of this is just beginning because so much of the world is still really dependent on oil, and that is going to be the primary channel through which it impacts the US economy, but there may be others in the coming weeks as well.

Amina: How quickly were those impacts felt by American consumers, maybe at the pump first?

Lydia: Right away. Even though a gallon of oil from the Persian Gulf takes a while to get to your gas stations, it's not like that one gallon is more expensive, and it'll trickle through. This is a global market, and so it depends on futures prices. This is what investors think that it'll cost over the medium term. Those prices translate fairly quickly. GasBuddy, which tracks these prices at the pump nationwide, found that I think they're averaging $3.32 today, which is as high as it's been in a year and a half. People are going to feel it right away.

Amina: As you write in your piece, the United States is a net energy exporter. Why is all of this a problem?

Lydia: This is a difference from the reaction that we would have seen in the early 1990s, when there was also a war in the Gulf, or even 10 or 15 years ago, because there has been this emergence of the shale gas industry in the US. The important thing, though, is that the energy market is pretty complicated. I'm not like a total expert on it, but just because we export more energy than we import doesn't mean that we're completely insulated, because there's different types of energy.

Natural gas goes into a whole bunch of other energy uses besides cars. What we put in our cars is actually a mix of different types of oils, so we still need to import some of it. It does mean that the energy costs aren't going to flow over into some of these other uses, like gas that we use to heat our homes or power electricity that is used in industrial facilities as much as it is in Europe, for example. Europe, which already had been trying to wean itself off gas and oil from Russia and depend more on energy from the Middle East, is now facing challenges on both of those fronts. The energy price shock is going to be quite a bit larger over there.

In the US, we have our own supplies, and also our own companies are these big producers, so you'll see American companies benefit. Whether that ends up meaning they hire more people is yet to be seen, but they have been waiting for higher prices per barrel in order to start pumping more. The price per barrel is going to be moderate for a while now, and so they are taking advantage of this. That will, as more supplies come online, that will limit the increase.

The folks who study this stuff, like at investment banks, are expecting that prices will remain elevated through the rest of the year because of that cutoff in supply in the Persian Gulf, even if it does return to normal soonish, because inventories will be so depleted. Of course, we do not know if it will return to normal soonish.

Amina: I want to get your take on the response coming from the White House on this. Yesterday, Press Secretary Karoline Leavitt seemed to deny that the war in Iran was impacting oil prices or the economy. Let's take a listen to a bit of that.

Karoline Leavitt: It is the president's belief and his economic team's belief that the economy continues to be very strong. It's robust and will be able to weather any of the temporary impacts of Operation Epic Fury.

Amina: On Tuesday, Trump acknowledged the price hike, but he said it would come down eventually.

Donald Trump: If we have a little high oil prices for a little while, but as soon as this ends, those prices are going to drop, I believe, lower than even before.

Amina: As the White House navigates its messaging, can you fact-check that statement from the president for us? In what scenario might the prices actually drop, and does that look likely?

Lydia: I think that his justification is that if the US or more friendly nations to us control that street, the Strait of Hormuz, going forward, that could mean that it is less subject to interventions by Iran. Iran has not, before this, restricted tankers from going back and forth. It is how they make their money. It's hard for me to see how that would lead to freer flow of oil in the future. One way in which that could be true is if American producers scale up and have more pumping at the end of all this, and so inventories are higher, and so gas prices are lower than they were originally. Again, this stuff does take a while to sort itself out if supplies are interrupted for a serious period of time.

The other justification he has offered is they are going to be protecting boats. If necessary, the US Navy will escort ships in and out and offer insurance, which I mentioned before, at competitive rates. That might keep oil flowing, but it will be costly to US consumers. It just depends on where you see the costs coming through. One more thing that the president may view is the US has a strategic petroleum reserve that is used in emergency times to keep prices under control. President Biden also used this when prices spiked very high in 2022 to keep them from going even higher. It's not an unprecedented use, but it does come at the cost of the taxpayer ultimately.

Amina: We are getting a few texts and calls. Listeners, we can take a few more. Maybe you want to report on the ground what you're experiencing with heating prices. Maybe you filled up your gas tank at the pump this morning. What are you seeing? 212-433-WNYC, that's 212-433-9692. Here is a text. "The cost to heat my house with propane went up $0.30 cents a gallon in one day from $2.39 to $2.69. I had to lock into the higher price for a year because I wasn't expecting it." Let's go to a call. Craig in Morganville, you're on WNYC. Hi, Craig.

Craig: How are you doing? I don't know if I'm sure your guest is very knowledgeable, but oil is one of the few commodities that even when you buy barrels or however big your order is, while it's in transit, that price fluctuates till it gets to the destination. It's not like you buy a bushel of corn and then it's done, and you pay for it. That's another issue with oil. That's a big problem, that when even prices are low, you're really handcuffed to the market even more so. The other thing is a lot of news agencies still don't report that half of Europe is still buying natural gas from Russia, and everyone fails to realize that. That's kind of a bad thing, also. Thank you.

Amina: Thank you. Craig, thank you so much. Lydia, two points in there. You did talk about oil being a futures commodity, so maybe going to what Craig was saying, it's a commodity that the price goes up while it's in transit, and as we saw that text reporting heating for propane oil going up and having to be locked in for the year. What do you want to comment on that?

Lydia: Sure. As context, it is true that energy costs outside of gasoline have been rising, especially for electricity. That's because of a number of things. Demand has been increasing markedly because of new data centers, which I believe a guest of yours is going to talk about later in the show. That's already a rising cost to consumers. It is interesting to hear that from that text message that residential gas heating is already jumping.

A note on what Craig said, it is true that the oil price fluctuates all day, but how big companies handle this is they can buy contracts that lock in their price for a few months to a year. They can also buy hedges. If the price goes up, that means that they get a financial benefit to the other side to try to keep their costs stable. As those contracts renew, they have to buy new ones. Their costs will go up. It's just a matter of who has to weather the volatility. Like a general rule of thumb, is that the smaller you are, whether you're a business or a consumer, the more subject to that volatility you are, which is really difficult if you're trying to plan your expenses for the coming months.

Amina: You wrote about how this isn't the 1970s, when turmoil in the Middle East led to fuel shortages that sent inflation skyrocketing and created lines at gas stations. A lot of our listeners might have experienced that surge back then, but for those of us who haven't, can you explain what happened and how the American consumer experienced it?

Lydia: Yes. The '70s were a time of a lot of political tumult in the Persian Gulf and in Iran, specifically with the revolution, and there was an embargo. At that time, I believe, most of our oil did come from that region. That has changed over the years because the US has become a big producer, but other regions of the world as well, and so our unit of oil per growth of gross domestic product. The energy intensity of the economy has gone down a lot for a couple of reasons.

One, the US has become more dependent on services. Now, most of our jobs are in offices as opposed to goods. We don't need as much energy to make as many cars as we used to. That has its downsides, but it does mean that we're not as subject to fluctuations in oil prices. The other thing is that we have also brought a lot of renewable energy online. California and Texas have huge amounts of solar and wind. That's domestic homegrown energy as well. This is something we're thankfully more insulated from.

Just so folks remember, the 1970s oil embargo led to an inflation spike that is still the largest we've seen in American recent history, and that's for a lot of reasons. It became so much of a problem that inflation built on itself. People demanded wage increases because they expected prices to keep going up. Those wage increases themselves drove up the price of the products that those people were making. It created this spiral that resulted in 14%, 15% inflation that the Federal Reserve had a really hard time bringing under control. That didn't happen even in this latest big inflation spike in 2022, and I don't think it's going to happen this time around, but it is real money that people are going to have to factor into their budgets.

Amina: You write, "Most impacted are going to be small businesses and consumers with low incomes." Now, you know that this depends on just how long the war in Iran lasts, but let's take that one at a time. How might this hurt small businesses?

Lydia: As I mentioned, small businesses typically aren't buying financial instruments to hedge their downside risk, and they're not locking in long-term contracts for energy prices. Say you are a small delivery business and you have little trucks that consume diesel, and diesel is now up to $4 a gallon. You're going to have to pay that extra money. Let's think of other energy-intensive businesses. I don't know, say you run a bakery and have to run your ovens all day. That's a meaningful expense for you now.

Then on the consumer side, low-income folks spend a greater share of their incomes, which are lower, on getting from place to place. It's going to be less for folks who live in big cities like New York, where we're fortunate to have a subway to get us around, and more for people in rural and suburban areas who need to drive everywhere.

A data company I talked to had broken this down to try to see which retailers would be most impacted by their customers having to spend more on gasoline, and it's a little bit illustrative. It's companies like Boot Barn and like Taco Bell, where their customers are the most impacted by gasoline price hikes, and also are in these suburban areas where you cannot walk or take a subway. To get there, you have to drive.

Amina: Listener writes, "The cost of food and goods is killing us. Now add the increase in transportation costs due to this completely avoidable situation in Iran." You also write, "With the personal savings rate at its lowest point in more than three years and delinquency rates on credit cards and auto loans rising to levels not seen since the Great Recession, there's not a lot of cushion left." Pretty direct impact, even just gas prices at the pump, right?

Lydia: Yes. There's never a great time to invade a country and spike gas prices, but this is perhaps more difficult time. We just got new jobs numbers in this morning that show a really stagnant labor market. Now wages on average are still rising at a healthy pace that, again, on average are ahead of inflation. We've seen this emergence of a wedge in the US economy where high-income consumers, especially those whose earnings have been boosted by a really healthy stock market, are propping up spending, and those on the lower end have really been suffering.

That savings rate means basically the difference between your income and how much you're spending. People are putting more of their expenses on credit cards, where interest rates are still higher than they had been before the pandemic. A lot of folks are really under strain, and rents have gone up a lot, and especially for low-income renters, that has meant in real terms, they are earning less than they did four or five years ago. This is a period where folks are really stretched, and that's why it's concerning.

On the low end, there may not be that much that people can pull back on spending. You still need to buy food to feed your family. Folks will also know this month new work requirements kicked in for SNAP benefits, and in the coming year, that's going to happen for Medicaid. Hopefully, people will see some healthier tax refunds because of the big tax cut that went into effect last year. That is something that economists think could help to sustain spending. Right now, a lot of folks are really struggling to try to put the pieces together.

Amina: It's The Brian Lehrer Show on WNYC. I'm Amina Srna, filling in for Brian today. My guest is Lydia DePillis, who is a New York Times reporter covering the American economy. We're going to take a quick break. When we come back, we can take a few more of your calls. 212-433-WNYC, that's 212-433-9692. Stay with us.

[MUSIC]

Amina: It's The Brian Lehrer Show on WNYC. I'm Amina Srna, filling in for Brian today. Lydia DePillis, New York Times reporter covering the American economy, joins us now. Lydia, POLITICO reports that the administration is "scrambling for solutions." It's apparently considering a temporary holiday on the gasoline tax. Are you familiar with that proposal or what that could mean?

Lydia: I haven't replicated that reporting myself. I don't doubt that they are thinking about how to blunt the impact here. Of all the costs that people face, gasoline is one of the most salient. It's literally posted on gas stations all around the city and on highways, so people keep track like you also might track the price of milk or eggs. This is something that people have to deal with every day, unlike buying a car, which is a very infrequent purchase. It's very politically salient, so I am sure they are trying to figure out what to do.

The gas tax holiday, I am not sure if they could do that through executive order. That seems like something they would require Congress. Of course, gasoline prices are also determined by state gas taxes. It wouldn't necessarily decrease prices that much, although it is a meaningful amount. I think it's like $0.18 a gallon or something. Don't quote me on that.

I believe it's also been reported, again, that they're considering releasing oil from the Strategic Petroleum Reserve. There are plenty of things you could do. The Trump administration has not shied away from increasing state control of the economy. This is something that traditional conservatives would have found pretty distasteful, but I don't doubt that this administration has shown its willingness to intervene before.

Amina: You mentioned already Trump's announcement that the US Development Finance Corporation will provide political risk insurance for crewed carriers and cargo ships operating in and around the Persian Gulf. You also mentioned that he said the Navy will begin escorting tankers through the Strait of Hormuz, if necessary. Is any of that feasible?

Lydia: Sure. It's feasible. The government provides insurance for all kinds of things. Think of the flood insurance program, for example, which is a government program that is in place because the private sector does not want to provide that product. It's just too risky and not profitable. It is something that we subsidize. Totally possible, but the question is, will shippers send their ships through a Strait that is still very dangerous?

Getting an insurance payment if your boat gets sunk is helpful, but your boat is still sunk, and your crew is probably dead. It still might be the kind of risk that they don't want to take, even if they have insurance. Yes, being escorted, but does the US Navy have the capacity to escort every single oil tanker when the Navy and other services are very stretched now? We have military ventures in lots of parts of the world at the moment. There's really a question of whether they could keep that up for very long.

Amina: Our caller, Craig, earlier had mentioned Europe and drawing some parallels there. Before the full-scale Russian invasion of Ukraine began in February of 2022, Europe had relied heavily on oil from Russia. Now, a lot of countries have shifted to the Middle East. Any lessons from Europe that you see for the US?

Lydia: Europe is in just a much worse position. I'll remind folks, one of the reasons they pulled back from some of their climate commitments, just because as costs have risen, they need to maintain access to those fossil fuel sources. It's a politically difficult position to be in, but it is short-sighted. Had Europe been able to shift more towards renewable sources, in the three years since Ukraine was invaded, they might have been more insulated from this new shock. Again, it's just very difficult when you've had your back up against a wall.

It's not the only one that'll be affected, though. Other emerging countries, economies also rely on oil from the Middle East. India is one of those that it could really be in a tough spot. I did read that the US, which had been pressuring India to stop buying oil from Russia, has relinquished that pressure. One of the beneficiaries here may be Russia, as the US tries to mitigate the impact on the rest of the world of the war that it is waging with Israel.

Amina: Good point, because I was also hearing yesterday that China relies very heavily on Iranian oil, something between 11% to 13%, and they already took a hit. It's been two months since the US attack on Venezuela, where Russia also was receiving oil from. It remains to be seen what that country will do next. Lydia, this is a little bit outside of what you wrote about very recently, but I wonder if you have been following this part of the story as well.

Food systems expert and University of Texas professor Raj Patel wrote in a Substack that fertilizer prices are already spiking, causing a panic among American farmers who are beginning their planting season for the year. He writes that consumers may see "higher prices for bread within 6 to 10 weeks, eggs within a few months, and pork and broiler chicken within 6 months." That's very specific from this food systems expert, but I wonder if you're generally following the farming story.

Lydia: I haven't looked at it with in as much depth, but I do know that that Strait of Hormuz is a channel for not just oil, but other petrochemical products, of which fertilizer is one. We do get a lot of fertilizer from Canada, I believe, and some of this has become more expensive because of tariffs already. This is like cost on top of cost. It's interesting to know that that could feed through into food prices that quickly. I would not be surprised to see that.

Other petrochemical products that come out of there go into US refineries that make things like plastic. Those are products that could also start to see increases in price. Again, if we can't import inputs into our farming sector and our other manufacturing sector at reasonable prices, we typically would turn to import those final products, like those food products or those plastic things, but those are now tariffs. There's many fronts on which the Trump administration is raising costs, and so it does start to accumulate pretty quickly.

Amina: Listener asks, "How can Trump promise to ensure oil tankers? Wouldn't Congress have to designate funds for something like that? Promising a Navy escort doesn't that just put more Americans in harm's way? Why wouldn't Iran just attack both ships?"

Lydia: I'm not like an expert in military deployment, but I would say that surely the Iranians' capacity is being rapidly eroded. A question is how long they can continue to send drones and missiles against all of these targets at once. On the question of whether Congress would need to appropriate money, Trump administration has moved a lot of money around, and the channel through which they are trying to do this is the Development Finance Corporation, which is like semi-private. It's got income streams of its own.

I don't think that it would need to go to Congress for that. Although big picture here, it didn't go unnoticed. The Trump administration, a few months ago, said that it wanted to raise the budget for the Pentagon to $1.5 trillion, which is a 50% increase over the current average annual budget. It is imagining a much bigger scope, and I doubt that Congress will allow for that, but the cost to the treasury of war is high. We know this from conflicts past, from Iraq to Afghanistan to Syria.

That's the kind of thing that can leave the US with debts that don't get repaid for years. The aggregate accumulated national debt is now around 120% of GDP. If you don't pay that down, it just keeps going up, especially as interest rates are high. Debt service just keeps piling on top. This is the kind of thing where the bill can get racked up pretty quickly.

Amina: We've been talking about how Americans are paying for this war in Iran. You also talked about the political cost. Let's get into that as we wrap up the segment. I used the term "affordability crisis" in my intro to the segment. The last time we heard about cost of living crisis, affordability crisis was during the Biden administration and the 2022 midterms when gasoline prices spiked because of Russia's war in Ukraine. Republicans hammered gas prices in those midterm attacks. As someone who covers the American economy, you want to give us your take on just how big of a deal oil prices are politically or could potentially be this year?

Lydia: Yes. They're super critical. I think that the Trump administration is hoping that the midterms are still a ways away, but Trump's approval ratings are already at a fairly low ebb, and specifically on the economy, which had been one of his best issues. They're underwater. It's not like Democrats are seen as being more competent on the economy, but they're not in charge at the moment. It's a real vulnerability.

The White House had seen some decent numbers on inflation recently, like the consumer price index came in pretty soft at the last reading that we got, but I think consumers know that it is not back to "normal." It's not back to where the Federal Reserve hopes to get it to. The reason for that is tariffs. Absent those tariffs, price increases would probably be back around 2%, which is manageable with the wage increases that people get, and I think people know that.

Even when the president had a big setback at the Supreme Court, which negated rules illegal, his most potent tariff tool, he came back around and used another authority to try to get those tariffs back as high as he could as quickly as possible. I think that kind of thing has made news, and I think people realize that their costs could be lower, but for White House policy.

Amina: We'll have to leave it there for today. My guest has been Lydia DePillis, New York Times reporter covering the American economy. Lydia, thank you so much for taking this big global story and driving it home for us today.

Lydia: Happy to do it.

Copyright © 2026 New York Public Radio. All rights reserved. Visit our website terms of use at www.wnyc.org for further information.

New York Public Radio transcripts are created on a rush deadline, often by contractors. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of New York Public Radio’s programming is the audio record.