Economists have warned that if crude oil prices rise to around $138 a barrel and persist for 14 weeks, the chances that the U.S. will enter a recession would tip above 50 percent, according to a survey.
Analysts are keeping a close eye on the developments in the Middle East amid President Donald Trump’s war on Iran, and are paying particular attention to oil prices.
The joint U.S.-Israeli military operation on Iran has disrupted oil supplies around the world and seen prices soar.
The international benchmark for oil, Brent crude, briefly hit $119 a barrel Thursday morning but later dipped to $110. In February, before the bombing campaign began, it was trading at an average of $70 per barrel.
In a survey carried out by The Wall Street Journal, 50 economists at banks, universities and consulting firms said that the probability of a recession in the next 12 months was 32 percent — an increase from 27 percent in January. Economists were polled by the financial outlet on how high crude oil prices would need to rise in order to increase the probability of recession above 50 percent, and their responses ranged from $90 a barrel to $200. On average, the price point was $138.
Some said that a recession became more likely if prices were at an elevated level for four weeks, while others said it would need to persist for 55 weeks. The average duration was 14 weeks, according to the WSJ.
Economist Robert Fry of Robert Fry Economics told the newspaper that his probability of a downturn was at 40 percent, and $125 a barrel for eight weeks was his “make-or-break” point.
“My forecast is contingent on the assumption that the Strait of Hormuz will be fully open to tanker traffic by mid-April,” Fry told the outlet. “If it isn’t, oil prices will go much higher, and I will put a recession in my forecast.”
Mark Zandi, chief economist at Moody’s Analytics, warned this week that recession was “once again a serious threat.”
The economist said that even before “the recent disconcerting events in the Middle East,” the probability of recession had risen to 50-50, according to a model run by his firm.
“Despite mounting evidence that the economy is struggling and recession risks are high, economists will be loath to utter the word ‘recession,’” he added in a post on X. “Many were sure a downturn was imminent in the wake of the Fed’s monetary tightening a couple of years ago, vocally said so, but were wrong. However, if oil prices remain elevated for much longer (weeks and not months), a recession will be difficult to avoid.”
Bob McNally, a former energy adviser in the George W. Bush administration, warned that the rising crude prices were “a body blow” to the economy.
“Oil companies are not thrilled with these sharply rising crude prices,” McNally told The Washington Post. “This is not a healthy, sustainable increase in prices and profits and investment opportunities for these companies. It is a body blow to the economy that will likely end up hurting demand for petroleum products.”
Bernard Baumohl of the Economic Outlook Group said the U.S. had so far been resilient in the face of “surging oil prices, high tariffs, AI and the severe constraints on immigration.”
“But we must not take this resilience for granted,” Baumohl told the WSJ.
The Trump administration has maintained that the rise in oil prices will be “short-term disruptions” and is “a small price to pay” for global “peace and safety.”
On Wednesday, the administration temporarily waived maritime shipping requirements under a more than century-old law known as the Jones Act to counter steep oil prices and cargo disruptions due to the war. The act required goods transported between US ports to be on American made and operated ships.
