Even in the event that the Middle East conflict eases and shipping resumes as usual through the Strait of Hormuz, it would likely take time for the global economy to normalize after one of the largest oil supply disruptions in decades. The overall costs of that disruption wouldn’t be borne equally, either: While net energy producers would benefit from higher real incomes, most energy users, including U.S. households, would be relative losers.
For lower- and middle-income U.S. households already contending with stagnant real incomes and rising consumer credit delinquencies, the energy shock is compounded by tax relief that may be less impactful than many hoped. Resilient trends in the aggregate data will likely continue to mask deepening divergence under the surface.
Why energy price recovery could take months
The increase in oil prices, while sharp, has been contained relative to the magnitude of the supply disruption. However, past shocks – the 1979 Iranian Revolution, the 2022 invasion of Ukraine, and arguably even the 1990 Gulf War, where West Texas Intermediate (WTI) oil prices kept rising for about ten weeks after Iraq’s invasion of Kuwait – show that the full price impact often builds over months rather than days.
In 2026, lower oil intensity of global GDP, improved energy efficiency, a larger non-OPEC supply base, and an initial market view that the disruption will prove temporary rather than structural have all helped suppress the early moves in prices. But historical episodes suggest prices may still have further to climb. And even if the disruption itself is resolved quickly, elevated energy prices may persist longer than markets have priced – and longer than in past episodes. Several factors help explain why.
Physical shipping constraints are likely to persist. Even if access to the Strait improves, the significant congestion of tankers and cargo vessels will take time to clear. Shipping schedules, port capacity, and insurance coverage all adjust with lags, implying that effective supply to end markets may remain constrained even after headlines point to reopening.
Infrastructure damage raises near-term supply uncertainty. Unlike past disruptions driven by sanctions or other policy-related factors, the current conflict has reportedly damaged some regional infrastructure tied to extraction, transport, and storage. Even limited physical damage can have outsize effects in a system operating with tight spare capacity outside of a few key producers. Restoration timelines are uncertain, and markets tend to price a buffer until functionality is verified – not just announced.
Global inventory restocking will tend to sustain demand pressure. Robust inventories outside the Middle East have been a key buffer absorbing disrupted physical flows. As those inventories draw down further with little improvement in Middle East shipping, the risk is another abrupt price spike and tightening financial conditions as global demand adjusts downward to the lower supply. Even if disruptions dissipate, higher demand – including for restocking inventories – could persist, keeping prices elevated.
Risk premiums may be sticky. Iran has demonstrated its ability to meaningfully disrupt a critical global chokepoint. Even if tensions ease, markets may be reluctant to fully remove this risk from prices, particularly for longer-dated contracts. Energy futures curves support this view: Contracts for late 2026 and beyond have remained elevated even amid periods of de-escalation. The implication is not necessarily that another disruption is imminent, but that the perceived distribution of risks has shifted.
Has U.S. tax relief fallen short of expectations?
The energy shock will only exacerbate the “K-shaped” trends that have characterized U.S. growth over the past few years. Since the U.S. is a net energy exporter, higher real profits will tend to accrue to U.S. energy producers – at the expense of lower real incomes for most households and other businesses.
Non-energy businesses are getting some support from tax cuts and from tariff refunds after the Supreme Court struck down tariffs enacted under the International Emergency Economic Powers Act (IEEPA). However, for households, the One Big Beautiful Bill Act (OBBBA) appears to be less supportive than initially expected, at least for lower- to middle-income households who tend to receive tax refunds.
Early expectations envisioned a sizable boost to household cash flows via materially larger tax refunds in the 2026 filing season. Pre-filing estimates suggested average refunds could rise by $800–$1,000 versus last year, reflecting retroactive tax changes and the absence of withholding adjustments during 2025. In practice, however, refunds appear to be running closer to an average increase of roughly $300, according to the U.S. Treasury Department.
The apparent shortfall suggests that more of the OBBBA-related household tax benefit is accruing to middle- to upper-middle-income filers who itemize deductions, have material state and local tax exposure (e.g., New York and California filers), and have sufficient taxable income to benefit from enhanced deductions. Confusion around how to file for refunds of 2025 taxes paid on tips and overtime, or poor documentation of overtime hours worked, could also be limiting or delaying payments to lower-income filers. And many of those households are feeling the greatest pinch from higher gas prices.
K-shaped economics, reinforced
Even if shipping were to resume as usual through the Strait of Hormuz, the effects of the disruption would reverberate globally for some time. The fact that Iran could easily close such an important chokepoint likely means that oil prices may take even more time to retrace to pre-war levels.
Energy users, including many U.S. households and businesses, are facing significant impacts from higher costs. Higher real profits in the energy sector tend to come at the expense of lower real incomes and greater financial stress elsewhere in the economy – particularly for lower-income households now absorbing higher energy costs with less tax relief than anticipated. The K-shaped economy may be an enduring trend.
