Mostly Economics Podcast: How the War on Iran Is Shaping the US Economy with Claudia Sahm:

Why It Matters

The conflict’s impact on oil prices threatens to erode consumer purchasing power and could ignite a broader recession, underscoring the urgency of energy diversification and proactive policy measures.

Key Takeaways

• War in Strait of Hormuz raises U.S. gasoline prices temporarily.
• Supply shocks cascade, prolonging inflation despite quick conflict resolution.
• Green energy investments act as buffer against global oil disruptions.
• Prolonged closure could cut disposable income, dampen consumer spending.
• Market confidence risk could trigger broader recession if optimism collapses.

Summary

The podcast examines how the escalating conflict in the Strait of Hormuz – often called the “war on Iran” – is feeding into the United States’ macroeconomic outlook. Host Dean Baker and chief economist Claudia Sahm explore two scenarios: a swift diplomatic resolution versus a protracted closure that could last months.

In the optimistic case, even a rapid settlement would not instantly normalize markets. Recent weeks of gasoline hovering above $4 per gallon illustrate how supply shocks reverberate through energy, freight and even airfare costs. The episode places this shock alongside pandemic‑induced bottlenecks, Russia’s invasion of Ukraine and lingering tariff effects, emphasizing the long tail of price adjustments.

Sahm highlights that the United States’ exposure is largely price‑based, not physical shortages, thanks to domestic production. She points to the Inflation Reduction Act’s green‑energy subsidies as a strategic hedge against future oil disruptions. The conversation also touches on broader market dynamics, noting that despite high valuations in AI‑driven stocks, a loss of confidence could quickly erode wealth and suppress spending.

If the strait remains closed, higher diesel and gasoline costs will squeeze household disposable income and force businesses to trim other expenditures, potentially slowing growth. A deeper crisis of confidence could tip the economy toward recession, making policy responses and diversification into renewable energy increasingly critical for resilience.

Original Description

Season 2, Episode 1:

In today's episode, Dean Baker discusses the economic shocks from starting a war with Iran with renowned macroeconomist Claudia Sahm, Chief Economist at New Century Advisors.

On May Day 2026, workers are feeling the squeeze of $4+ gallons of gas and other ongoing financial stressors. Claudia breaks down what conflict in the Strait of Hormuz costs everyday Americans. This is the latest in a five-year streak of supply shocks: the pandemic, Ukraine, tariffs, and now this latest war. The workers keep absorbing the impacts from all of it. What role does the Fed have to play in mitigating these crises? Find out by tuning in.

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