Diverging Paths: Assessing the Iran War’s Uneven Economic Impact

As the war in Iran reshapes global economic outlooks, we examine what’s driving diverging impacts across regions—and why some are better positioned than others.

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Key Points

The conflict in the Middle East has a disproportionate impact on economies around the world.

We believe the driving factors are whether a country is an energy importer or exporter and the type of energy it relies on.

There are nuances even within an economy. We consider how rising energy prices in the U.S. exacerbates the K-shaped economy.

As we began this year, expectations were that economic growth were going to accelerate globally relative to what we saw in 2025.

And of course, there are a lot of positive tailwinds driving that even here in the United States.

However, the war in Iran has obviously complicated the matter in a number of different ways.

All else equal, when you have this conflict and ultimately leading to a supply shock in energy and energy prices going up, it has a negative impact on economic growth and it actually starts to pick up inflationary pressure.

All else equal, when we think about gross domestic product growth as a result of this war, before the war and where we are today, we're expecting to see economic growth come down slightly and inflationary pressures go up.

In fact, the International Monetary Fund (IMF) recently announced or re released their estimates for economic growth and inflation and the numbers were pretty much as you would expect them to come in slightly lower economic growth, slightly higher levels of inflation.

What's interesting though is as you double click and take a look at what's happening around the world, this war and the conflict and energy prices going up disproportionately effects different economies around the world.

Ultimately, it comes down to whether or not these countries are energy importers or energy exporters into the world.

And taking it one step further, it's not just energy overall, but it's the type of energy.

Think about oil, for example.

If you're looking at West Texas Intermediate (WTI, extracted in the U.S.) and Brent (extracted near Europe) crude oil, you'll notice that they tend to move in tandem because oil is a globally priced commodity.

When you take a look at natural gas, for instance, you'll notice that it is a regionally priced commodity and you'll see prices in Asia, prices in Europe, and prices in the U.S at very different places.

Ultimately, while this war has a negative impact on economic growth and does create some inflationary pressure, from a relative standpoint, the U.S. is far more isolated relative to Europe, for example, or Asia, which largely depend on energy imports in order to keep their economy going.

But even here in the U.S., it's a bit of a double edged sword.

Had this happened maybe a few years ago when the U.S. was importing energy from around the world, no doubt this would have been a negative.

The United States today is actually a net energy exporter.

However, while it might have a positive impact and create a tailwind for certain sectors of the economy —energy, for example — we have to recognize that higher oil prices is a tax on consumption.

At the end of the day, when oil prices go up, gas prices go up and consumers have less money in their pocket to spend on other things after filling up their car with gasoline.

What we're noticing here is as a result of the spike in energy prices, this K-shaped economy which we've talked about here in the U.S. is further exacerbated.

You're noticing certain segments or certain cohorts of the U.S. population.

Some they're doing relatively well, and others at the lower end of that K from an income distribution standpoint suffering as affordability continues to be problematic.

Main Point

Rising Energy Prices’ Disproportionate Impact on Economies

The war in Iran is raising energy prices, but the impact to economies around the world isn’t consistent. Consider a country’s energy imports vs. exports and oil vs. natural gas to get a clearer picture of the risks it faces as the conflict continues.

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Joseph Tanious

Chief Investment Strategist, North America

Joseph Tanious is chief investment strategist, North America for Northern Trust Asset Management. He is responsible for developing and communicating the firm’s investment outlook across asset classes as well as producing investment analysis and thought leadership for the broader marketplace globally. To build out economic and market views, Joe regularly collaborates with the firm’s investment teams in equities, fixed income, multi-asset and alternatives.

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