The war in the Middle East has been one which has brought benefits to some sectors of the US economy. The military industrial complex is one as they await orders to replace the munitions that have been used. Another in the news has been the energy sector.
US crude exports are projected to hit a record high in April as Asian customers hunt for supplies to replace Middle Eastern oil lost because of the Iran war.
Oil research group Kpler estimates exports will jump by almost a third to 5.2mn barrels per day this month, up from 3.9mn b/d in March. Demand from Asian customers will rise by 82 per cent to 2.5mn b/d. (Financial Times)
So quite a volume boost and there has been a multiplier for the US oil industry from higher prices as well.
Surging American exports have also pushed up US crude prices, with West Texas Intermediate hitting a four-year high above $110 a barrel earlier this week. Its price on Wednesday remained more than 40 per cent higher than before the war despite the truce with Iran. ( Financial Times)
In some ways there is an irony here as we have looked at the efforts of President Trump to reduce the trade deficit with his tariffs to encourage US manufacturing. But here we are seeing war boost another US export. We have looked before at US shale oil production and its need for higher prices than other forms well present prices are well above its minimums.
US GDP
Yesterday also reminded us that at the end of 2025 rather a brake seemed to have been applied to US economic growth.
Real gross domestic product (GDP) increased at an annual rate of 0.5 percent in the fourth quarter of 2025 (October, November, and December), according to the third estimate released today by the U.S. Bureau of Economic Analysis. In the third quarter of 2025, real GDP increased 4.4 percent.
There is a technical reason for some of this as it reflects the government shutdown we saw.
was partly offset by decreases of 7.8 percent in government.
But it is also true that in annualised terms GDP growth has gone 1.4%,0.7% and now 0.5% as the revisions have come in.
What about now?
In GDP terms that represents the first quarter of this year.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2026 is 1.3 percent on April 9, unchanged from April 7 after rounding. ( Atlanta Fed)
The number has been slip-sliding away as pre war we were being told this.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2026 is 3.0 percent on February 27, down from 3.1 percent on February 24.
I think that is significant as this quarter will see quite a boost from government spending returning to normal. But the impact of the war in the last month of the quarter and ther factors suggest another weak quarter for economic growth.
Inflation
Those higher oil prices are a problem in this area. The headline act in the US is below.
US petrol prices have jumped above $4 per gallon for the first time in four years. The price of diesel, crucial for transport and farming, is nearing a record high of $5.81 a gallon.
But there was an existing problem as this from the Q4 2025 GDP report reminds us.
The price index for gross domestic purchases increased 3.7 percent in the fourth quarter, revised down 0.1 percentage point from the previous estimate. The personal consumption expenditures (PCE) price index increased 2.9 percent, and the PCE price index excluding food and energy increased 2.7 percent, both the same as previously estimated.
The latter sentence covers the official inflation target. But the problem is that for all the official rhetoric to the contrary inflation remained a problem and had not returned to target. Now we will see a push higher that will begin in US terms with prices at the pump. Still if you ignore that things will be just fine according to the International Monetary Fund earlier this month.
As the passthrough of tariffs to consumer prices wanes, core PCE inflation is expected to fall to 2 percent by 2027H1, but headline PCE could be somewhat higher, impacted by world oil prices.
Another way of looking at the issue here is that for someone who has claimed on various occasions that there is no inflation President Trump has boosted it.
Remember tariffs? They are the main reason inflation remains above target, having added 0.8% to goods inflation. They are fuelling fragmentation and supply chain pressure. ( @fwred)
The tariff impact is now being replaced by the war impact.
Interest-rates
Back on the 24th of June last year I looked at this.
Too Late” Jerome Powell, of the Fed, will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate. Europe has had 10 cuts, we have had ZERO. No inflation, great economy – We should be at least two to three points lower. Would save the USA 800 Billion Dollars Per Year, plus. What a difference this would make. (@realDonaldTrump)
That highlights my point about him claiming that there was no inflation. As you can see from the figures we have just looked at this was not true. Now the pressure he was putting on the Federal Reserve faces energy price rises.
Also central bankers frequently tell us they focus on inflation expectations and according to the New York Federal Reserve they are rising.
Median inflation expectations increased by 0.4 percentage point (ppt) to 3.4 percent at the one-year-ahead horizon, increased by 0.1 ppt to 3.1 percent at the three-year-ahead horizon, and were unchanged at 3.0 percent at the five-year-ahead horizon in March.
Median year-ahead commodity price change expectations increased by 5.3 ppts for gas to 9.4 percent, the highest reading since March 2022.
Thus we have already seen two interest-rate metrics provide a brake for the US economy.
- The 30-year fixed-rate mortgage averaged 6.37% as of April 9, 2026, down from last week when it averaged 6.46%. A year ago at this time, the 30-year FRM averaged 6.62%. ( Freddie Mac)
It was 6% when the conflict in the Middle East started. Plus there is the issue implied by the Trump tweet. Government debt is expensive and rather than the 2% or 3% lower of the rhetoric the US ten-year yield is at 4.3% is in the same trading range we have been in for eighteen months or so now.
Comment
As you can see US economic growth had slowed before the war in the Middle East and whilst some sectors will benefit others will be impacted by another cost of living crunch. The indicator that is optimistic is the stock market with the S&P 500 closing above 6800 yesterday. Not so long ago that would have been a record. Yet now with the Straits of Hormuz still closed I find it hard to see the optimism it is showing.