US heading for a recession following Iran war? Odds spike as conflict expands

Fears of a U.S. recession in 2026 are rising as the war with Iran grows bigger across the Middle East. Prediction markets that track future events show higher chances that the U.S. economy could slow down or shrink. The White House says Americans should not panic despite the situation. White House spokesperson Kush Desai said President Donald Trump had already warned about “short-term disruptions,” but added that the long-term outlook for the U.S. economy is still positive.

The conflict began after a major military attack called Operation Epic Fury. The United States and Israel launched strikes on Iran on February 28 after talks about Iran’s nuclear program failed. The strikes continued for days and caused major losses. Iran’s Supreme Leader Ayatollah Ali Khamenei was killed, and seven U.S. service members died within the first 10 days of fighting, as stated by Newsweek.

War pushes oil prices higher

The war is also shaking global energy markets. Oil prices jumped above $100 per barrel for the first time since 2022, raising fears about higher fuel costs. Financial markets also reacted quickly to the conflict. U.S. stock futures dropped by more than 1 percent before Wall Street trading started on Monday. President Trump said higher oil prices are a small cost for security. He wrote that temporary oil price increases are a “very small price to pay” to stop Iran from becoming a nuclear weapons state.


Prediction markets now show higher chances of a recession. These markets allow people to bet on future events and reflect how traders feel about the economy. Kalshi’s prediction market showed recession odds rising sharply. On Monday morning, it showed a 33 percent chance of a U.S. recession in 2026, up from 22 percent one week earlier on March 2. Even with the rise, the risk is still below last year’s peak.

Economy faces new uncertainty

In July 2025, recession odds reached about 42 percent, which was higher than current levels. Polymarket showed a similar trend. The platform briefly showed 43 percent odds of a recession Sunday night, before dropping to about 30 percent by Monday morning. Just weeks ago the risk looked much lower. Polymarket showed 22 percent odds on March 2 and 27 percent on February 9, as cited by Newsweek.

These rising odds are worrying because the economy had recently started stabilizing. Inflation had been slowly cooling after two years of high prices and aggressive interest rate hikes by the Federal Reserve. But the war has created new economic uncertainty. Higher energy prices and global tensions could weaken economic growth if the conflict continues.

Oil surge raises gas price worries

Oil prices surged quickly after the strikes began. U.S. crude oil futures climbed to about $115 per barrel early Monday before dropping closer to $100 later in the day. Higher oil prices are already affecting American drivers. The national average gas price rose to $3.478 per gallon on Monday. Households using heating oil could also face higher bills. Some parts of the U.S. are still experiencing cool temperatures, which increases demand for heating fuel.

Expensive oil can spread inflation across the economy. Shipping, manufacturing, and transportation costs rise when fuel prices increase. This could also disrupt the Federal Reserve’s plans. If inflation rises again because of oil costs, the Fed may delay cutting interest rates later this year. Iran responded to the strikes by restricting a key oil route. The country significantly closed the Strait of Hormuz, one of the most important shipping lanes for global oil supply, as per Newsweek.

Global markets fall as conflict spreads

This closure has strained global oil supply and pushed prices higher worldwide. Many countries depend on oil that passes through this narrow waterway. Fuel experts say prices could keep rising quickly. GasBuddy analyst Patrick De Haan warned that markets are adjusting to the risk of long-term supply disruptions. He said gas prices could rise another 20 to 50 cents per gallon in some states this week. Consumers may soon feel stronger price shocks at the pump.

Stock markets around the world have also dropped because of the conflict. Markets in both Asia and Europe fell sharply on Monday. Japan’s Nikkei 225 index fell about 5 percent. Investors sold shares as worries about global economic stability grew. Europe’s Stoxx Europe 600 index also dropped nearly 5 percent compared with a week earlier. This reflects rising fear among global investors. U.S. markets were also affected. The S&P 500 and Dow Jones Industrial Average both fell Monday morning due to growing uncertainty.

Experts warn supply disruptions could hurt the global economy. Economist Neil Shearing from Chatham House said risks include disruptions to goods exported from the Middle East. However, he noted the United States may still have an advantage. Because the U.S. now produces more of its own energy, it is less vulnerable to global oil shocks than many other countries. Still, American households will likely face higher fuel costs. At the same time, U.S. energy companies and their investors could benefit from higher oil prices.

Political leaders in the U.S. are also arguing about how to respond. Some Democrats say the government should act quickly to stabilize energy markets. Senate Minority Leader Chuck Schumer urged the administration to release emergency oil reserves. He said the Strategic Petroleum Reserve exists for crises like wars that disrupt global energy markets. Schumer warned that refusing to release the oil could hurt American families, as per the Newsweek. He said it could increase the price shock people are already feeling at gas stations.

Economic analysts say the situation could create a “perfect storm” for energy prices. Statistician and political analyst Nate Silver said gas prices could spike sharply because of the war. Silver noted that Americans are used to fuel price changes. But he said it is unusual for prices to rise this quickly within just a month. Data from CNBC also shows recession fears rising among traders. Kalshi markets showed recession odds moving above 34 percent Monday, the highest since November.

Just days earlier the odds were below 25 percent. The sudden increase followed the sharp jump in oil prices above $100 per barrel, as stated by CNBC. Oil last crossed that level during another major global crisis. The previous time was after Russia invaded Ukraine in 2022. Production cuts and supply risks are also driving prices up. Middle Eastern producers reduced output while the Strait of Hormuz remained closed during the conflict. U.S. crude oil benchmark West Texas Intermediate saw record gains last week. Prices surged rapidly as the war escalated.

Rising recession fears as oil and gas prices climb

Economists warn that sustained high oil prices could damage economic growth. If gas and fuel costs stay high, both consumers and businesses may cut spending. Stock markets also showed signs of investor fear. The oil surge triggered another sell-off in shares after a volatile trading week. Some traders think a recession could start very soon. Kalshi bettors estimate an 11 percent chance that the next U.S. recession begins in the first quarter of this year.

Other traders predict a recession could happen before the end of the year. Polymarket bettors currently see about a 31 percent probability. Gas prices may rise even more in the short term. Kalshi traders believe there is about a 60 percent chance that U.S. gas prices exceed $4 per gallon this month. For now, the national average gas price is around $3.48 per gallon. That figure was reported Monday by the AAA fuel price tracker.

Experts also explained what a recession means in these prediction markets. Kalshi defines it as two straight quarters of negative GDP growth. The official definition used by economists is slightly different. The National Bureau of Economic Research declares a recession when there is a significant and widespread decline in economic activity lasting several months, as noted by CNBC. Overall, the widening Iran conflict is now a major risk for the U.S. economy. Rising oil prices, falling stock markets, and supply disruptions are pushing recession fears higher.

FAQs

Q1. Why are people worried about a U.S. recession in 2026?

People are worried because the Iran war pushed oil prices higher, which could raise fuel costs, slow spending, and hurt economic growth.

Q2. How could the Iran conflict affect U.S. gas prices?

The conflict disrupted oil supply routes and raised crude prices, which could push U.S. gas prices closer to $4 per gallon.