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Google FinanceMacroTrends.netBusiness Insider They could also bomb Saudi Arabian oil refineries to really set the markets both literally and figuratively ablaze. J.P. Morgan has estimated that even just closing the Strait of Hormuz could cause gas prices to almost double. Some have argued the price could even exceed $200 a barrel if the Strait is closed for a protracted period of time. This would make the gas lines of the 1970s look like a picnic. The Economic Fallout if the War Escalates The United States would not be hit anywhere near as bad as Europe or China by such a leap in energy prices. This is because the United States is a net energy exporter. Europe and China are both net importers, and Europe has been dealing with consistent economic problems from high energy costs since the Ukraine war started and Nord Stream 2 was destroyed. Closing the Strait of Hormuz would almost certainly send Europe into a deep recession. On the other hand, China’s rapid growth has necessitated enormous energy consumption and thereby, their development would be severely disrupted. So, would high oil prices technically benefit the United States? The answer is no. Shocks to the system are virtually never a benefit. In addition, demand for American exports would plummet as foreign consumers would no longer be able to afford to buy as many of our goods. Furthermore, the benefits of high oil prices would be netted mostly by energy companies. The costs (think $6/gallon gasoline) would be borne by the average consumer and business. While some large companies and wealthy investors might initially benefit from higher oil prices, the average consumer will be squeezed. This, in turn, would reduce consumer spending and cost corporate America dearly. Indeed, excluding the COVID-19-induced 2020 recession, the last five recessions have all been preceded by a significant rise in the price of oil. In other words, the United States would be hurt less than Europe or China, but it would still be hurt nonetheless. In addition, the United States is staring down an enormous fiscal challenge, especially if it needs to pay for another large-scale war. Even without the COVID-19 pandemic or financing a (major) war, the U.S. still ran a $1.83 trillion deficit, which amounts to 27.1% of the federal budget! 2025 will already be the first time in its history that the United States will spend more on debt service than its military. The U.S. can always borrow and print more dollars to prevent default. But this will further erode the value of the dollar, speed up de-dollarization, and put upward pressure on interest rates. And all of this will happen while high gas prices push the United States toward a recession. A limited military operation like bombing Fordow wouldn’t cost a substantial amount. But I would think it’s unlikely to end there. And remember, the U.S. spent upwards of $6.5 trillion on Iraq and Afghanistan. The cost of a large-scale war in Iran could very well trigger a sovereign debt crisis. The Unspoken Operating Costs Crisis When we zoom in to look at the more localized effects such a conflict could have on businesses and real estate investors, the looming threat is to greatly exacerbate something that has become an albatross hanging around many of our necks since 2023: the major rise in operating costs. Office space has had significant problems, especially in coastal cities, and multifamily took a sizable hit when interest rates rose in 2023 and cut into cash flow. This inevitably caused cap rates to expand and prices to fall. And that was caused just by an increase in debt service payments. In our business and with everyone I’ve talked to, operating costs have become a significant challenge for years now. In 2024 alone, home insurance went up an average of 10.4%, property taxes went up 5.1%, and utilities up 3%, while wages are up 4.3%, all of which outpace inflation. And that was 2024 before the new tariffs were implemented. Materials price increases have slowed, but they never came back down completely from the astronomical increases in 2021 and 2022. Meanwhile, rents have gone up substantially over the past decade, but that has leveled off. As of February 2025, annual rent increases were at a paltry 0.6%. Simply speaking, it’s becoming more and more difficult to hold properties and operate them at a healthy profit. Numerous investors, businesses, and organizations have complained about it, with one calling operating costs “a looming crisis.” This goes for flippers as well, as all these costs also add up in a rehab even faster. Flippers need to get better deals to make up for those extra rehab costs, especially as there are now 500,000 more buyers than sellers, and we are likely moving into a buyer’s market. Oil prices are one of the largest factors that contribute to inflation. Most notably, OPEC’s 1973 oil embargo was a key contributor to the high inflation of the 1970s. If gas prices increase substantially, operating costs will become even more burdensome. If they skyrocket, operating costs may simply become unbearable for many, if not most, real estate investors. Trying to pad your reserves, if possible, is not a bad idea right now. Final Thoughts Entering into a war with Iran could very likely be an economic catastrophe for the United States and the world at large. It would very well cause oil prices to skyrocket, inflation to dramatically increase, and real estate operating costs to go through the roof. This is probably why, according to a new Economist/YouGov poll, 60% of Americans oppose America entering the war, while only 16% approve. Of course, no one should want Iran to have nuclear weapons. But in my admittedly biased opinion, I would look to the comparison between Libya’s Muammar Gaddafi and North Korea’s Kim Jong-un for how to guide U.S. policy. Gaddafi gave up his chemical weapons and then was killed by U.S.-backed rebels. Kim Jong-un got nukes, and everyone leaves him alone. The incentives are all backward. The Joint Comprehensive Plan of Action (JPCOA) may not have been perfect, but it was hard not to notice that those screaming the loudest about it were the same who screamed the loudest about Saddam Hussein’s alleged weapons of mass destruction. Diplomacy and a new nuclear deal are not going to happen at this point, unfortunately. But that doesn’t mean diplomacy is no longer possible. After Iran and Israel have punched each other out for a few weeks and, in all likelihood, realized that victory is not possible without a potentially catastrophic escalation, that will hopefully change. I, for one, certainly hope so.
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