The conflict in the Middle East has sent gasoline prices in the U.S. soaring to their highest level in four years. That’s bad news for everybody, but the domestic consequences of the war are likely to ripple unevenly, and in the process undermine one of the country’s primary engines of economic growth.
And expensive gas is for some households a huge concern. When gasoline prices spike, they drain real disposable income that would otherwise flow into the broader economy, forcing some families into making hard choices about where to put their money. By hurting lower-income households’ spending power and leaving the finances of the wealthy relatively insulated, the war in Iran could add even more fuel to the country’s growing K-shaped economy, according to a Moody’s Analytics report published this week.
“While household consumption remains the primary driver of U.S. economic growth, the ongoing Middle East conflict and resulting surge in oil prices are testing its resilience,” the report’s authors wrote. “If the conflict is prolonged, the shock would even more meaningfully reduce household purchasing power and weigh on spending.”
But spending’s outsize role could turn into a dangerously lopsided dependence. Analysts at Moody’s, including Mark Zandi, the firm’s chief economist, have repeatedly sounded the alarm that the bulk of spending comes from a relatively small share of consumers, specifically wealthy ones.
“Higher gasoline and utility costs act like a tax on households by reducing real disposable income,” Moody’s analysts wrote in the recent report. “As consumers spend more on essential goods and services, they will curb spending elsewhere.”
Higher-for-longer gas prices could also hurt wealthier Americans eventually. The Moody’s analysts warned that more expensive fuel will likely “erode some of the boost to household purchasing power” high-income groups would have had from fatter tax refunds this year.
