Iran War Triggers Global Energy Shock, Driving Inflation Surge in U.S., Europe and Australia

The U.S.–Israeli war against Iran entered its ninth week in late April, sharply curtailing shipping traffic through the Persian Gulf and the Strait of Hormuz. The bottleneck has choked a vital conduit for crude oil, natural gas, fertilizer and other commodities. Crude prices climbed from roughly $67 a barrel before the conflict to above $105 a barrel, while the national average price of gasoline rose about 21 % in March, reaching $4.30 per gallon (AAA) and $4.22 per gallon in other reports.

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United States – The Federal Reserve’s preferred Personal Consumption Expenditures (PCE) price index rose 0.7 % from February to March, putting the annual rate at 3.5 %—the steepest rise in almost three years. Core PCE, which excludes food and energy, increased 0.3 % month-over-month and 3.2 % year-over-year. Gasoline prices jumped nearly 21 % month-to-month; grocery prices slipped 0.1 % while clothing rose 1 %. Consumer spending grew 0.9 % in March, but after stripping out inflation the gain shrank to 0.2 %. Household disposable income rose 0.6 % nominally but fell 0.1 % after inflation, and the personal saving rate slipped to 3.6 % from 3.0 %.

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Eurozone – Headline inflation was 3 % in April, up from 2.6 % over the preceding twelve months and from 1.9 % the month before. Energy-price inflation surged 10.9 % in April versus 5.1 % in March, while core inflation eased to 2.2 % from 2.3 %. The European Central Bank (ECB) is expected to keep its benchmark rate at 2 % as it evaluates these pressures.

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Australia – The consumer-price index recorded a 4.6 % year-to-date increase in March, up from 3.7 % the month before. Fuel costs jumped 33 % in the month, pushing global oil prices above $110 per barrel. Underlying (core) inflation held steady at 3.3 % in March, but economists project it could near 5.5 % by mid-year if fuel-price shocks persist.

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Federal Reserve Chair Jerome Powell told reporters the Fed will likely keep policy rates unchanged for months while it gauges the war-driven supply shock. He emphasized that “people are experiencing higher gas prices … and that hurts.” The Fed has left its short-term rate steady after three cuts in the prior year, signaling a readiness to raise rates if inflation remains above target. The ECB’s governing council, according to market expectations, will hold its policy rate at 2 % pending further data on core-inflation dynamics. In Australia, Treasurer Jim Chalmers highlighted low unemployment and solid wage growth but warned of “heightened uncertainty” as the Reserve Bank of Australia (RBA) prepares for another tightening cycle.

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U.S. real GDP expanded at a 2 % annualized pace in the first quarter, with consumer spending buoyed largely by higher energy outlays that accounted for 42 % of the month’s spending change. Wage and benefit growth accelerated to 3.4 % in Q1, while jobless claims fell to a 60-year low. Nonetheless, disposable-income erosion and a declining saving rate raise concerns about household buffers. In the eurozone, the combination of sluggish growth and rising inflation fuels fears of stagflation. Australia’s cost-of-living pressures have prompted a temporary 26-cent fuel-excise cut and a GST rebate on petrol, yet analysts warn that untargeted support could “add fuel to the inflation fire.”

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Republican commentators have blamed the administration’s handling of the Iran war and tariff policies for erasing the inflation-reduction gains touted during the 2024 campaign. They argue that the surge in energy prices undermines the GOP’s pledge of lower prices and may prompt “blatant attempts to choose their own voters.” Economists such as Josh Williamson caution that persistent price shocks “necessitate further tightening” to anchor inflation expectations.

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Sources differ on the exact national gasoline price in March, reporting $4.30 per gallon (AAA) versus $4.22 per gallon (Globe and Mail). While U.S. inflation is uniformly cited at a 3.5 % annual rate, eurozone inflation is reported as 3 % in April, reflecting regional timing differences. Consumer-spending growth is consistently noted at 0.9 % month-over-month, yet inflation-adjusted spending gains range from 0.2 % to “just 0.2 %” across reports. Detailed regional breakdowns of U.S. price impacts remain absent.

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• “A year that was set to benefit from tail winds associated with a large tax cut and boom in artificial intelligence-led investment has been partially derailed by the impact of what as of today is an adverse and growing supply shock caused by the war in Iran,” — Joe Brusuelas, chief economist, RSM

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• “We're very well aware that people are experiencing higher gas prices all over the country now,” — Jerome Powell, Federal Reserve Chair. “And that hurts.”

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• “If inflation pressures continue to build in the months ahead, it will be more and more difficult for consumers to keep up,” — Scott Anderson, chief U.S. economist, BMO Capital Markets

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• “We’ve got low unemployment, we’ve got solid wages growth, and so we’ve got pretty good foundations as we confront this period of heightened uncertainty in the global economy,” — Jim Chalmers, Australian Treasurer

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• “The RBA faces a difficult decision, but the persistence of these price shocks necessitates further tightening to manage inflationary expectations,” — Josh Williamson, chief economist, Citi

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The Fed is expected to maintain its policy stance through the summer while monitoring core-inflation feed-through. The ECB’s next meeting on Thursday will likely confirm a hold on rates, pending further energy-price data. The RBA is slated to convene next week, with most forecasts pointing to another rate hike. Market participants will watch for any signs that the Iran-related supply shock eases, which could temper inflationary pressures across the three economies.

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