The United States economy has continued to expand despite the ongoing US-Israeli war in Iran, a conflict that has now stretched into its third month and triggered a global energy shock not seen since the 1970s.
President Donald Trump had earlier suggested the war would be short-lived, lasting no more than six weeks. Instead, it has prolonged into a sustained geopolitical crisis, disrupting global oil flows and pushing up prices across fuel, transport, and groceries.
Even with these pressures, official figures showed the US economy grew by 2% on an annualised basis in the first quarter of 2026. The data marked a rebound from the slowdown at the end of 2025 and comes at a politically sensitive moment ahead of November’s midterm elections.
While consumer spending rose modestly by 1.6%, economists say much of the headline growth has been driven by heavy investment from technology companies, particularly in artificial intelligence infrastructure. ING chief international economist James Knightley noted that AI-related spending has become the dominant force supporting growth as household consumption begins to weaken.
Despite the positive GDP reading, rising living costs remain a central concern for voters. Oil prices surged following disruptions to the Strait of Hormuz, with Brent crude reaching a four-year high of $126 before easing to around $111. Prior to the conflict, prices were near $73 a barrel.
The increase has filtered through to everyday expenses. Average fuel prices in the US climbed to $4.30 per gallon by late April, up from under $3 in February. Inflation has also accelerated, reaching 3.3% in March, the highest level in nearly two years.
These pressures have complicated the Federal Reserve’s policy outlook. The central bank has kept interest rates unchanged at 3.5% to 3.75%, reversing earlier expectations of rate cuts. Mortgage costs have also risen, with average 30-year rates increasing from 5.98% to 6.3% since the conflict began.
Economists warn that elevated energy prices could delay any meaningful rate cuts well into 2027 if supply disruptions persist.
Financial markets, however, have shown resilience. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite have all recovered early losses linked to the outbreak of war. The Nasdaq has gained around 10% since the conflict began, while the S&P is up about 5%.
Despite this market strength, political risks remain. With midterm elections approaching, analysts say voter sentiment is likely to be shaped more by inflation and household costs than by GDP growth or stock market performance.
The trajectory of the war, and whether key supply routes such as the Strait of Hormuz reopen, is expected to play a decisive role in shaping both the economic outlook and the political landscape in the months ahead.
