The specter of an escalating conflict between Iran and Israel spiralling out of control (with Washington embarking on the war) looms large over global markets and American domestic politics. This holds profound implications for oil prices, the US dollar, Trump’s tariff policies, the US economy, and his political standing. As tensions simmer, the interplay of these factors creates a rather volatile mix that could likely unravel the incumbent presidency.

A severe escalation, particularly involving the Strait of Hormuz, risks plunging the US into recession, undermining Trump’s economic pledges and public support.  Thus, the President’s foreign policy decisions are expected to be increasingly shaped by domestic pressures, a dynamic that is both underreported and critical. Let us then consider some facts:

Iran produces 3.3–4 million barrels of oil per day (bpd), accounting for 3–4% of global supply, exporting 1.6–2 million bpd, with exports of 1.6–2 million bpd, primarily to China.

However, the real threat lies in the Strait of Hormuz, through which 20% of global oil and significant share of liquefied natural gas flow. Disruption there could spike Brent crude to $80–$100 per barrel, raising US gas prices by 15–50 cents per gallon. A severe crisis, like Iran attempting to block the Strait with Houthi support, could push oil to $120–$150, with gas at $4–$5 per gallon, especially after Iran’s announced it will do just that, following US strikes on its nuclear sites.

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The Strait with maritime political boundaries (2004) (Public Domain)

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Markets have been muted, betting on OPEC+’s 5 million bpd spare capacity and US shale to offset losses, according to Rystad Energy’s Claudio Galimberti. But a prolonged Strait closure would overwhelm these buffers, echoing the 1973 oil embargo. Despite US oil production (12.9 million bpd), global prices drive domestic costs, threatening Trump’s low-energy-cost promise. 

However, a prolonged Strait closure would overwhelm these buffers, in a way reminiscent of the 1973 oil embargo. The US status as a net oil exporter (producing 12.9 million bpd), suffice to say, offers limited protection, as global oil prices dictate to a large extent domestic costs. Therefore, any further exacerbation threatens Trump’s pledge to keep energy prices low.

Higher oil prices often strengthen the dollar as a safe-haven asset, as the European Central Bank notes, but Trump’s 10–20% tariffs on China, Canada, and Canada tariffs on imports complicate this. A stronger dollar hurts exports, according to a CFR analysis, while tariffs raise import prices, fueling inflation. In a severe escalation, the dollar might surge briefly but weaken if a recession according to economists like Nouriel Roubini. This volatility challenges Trump’s trade agenda, as tariffs and inflation could squeeze consumer spending (70% of US economic activity), prompting the Federal Reserve to delay rate cuts or raise rates, slowing economic growth.

Trump’s tariffs aim to protect US industries but raise costs for consumers and businesses, risking inflation. His “drill, baby, drill” policy seeks to boost oil production (which makes sense), but tariffs on steel increase drilling costs, undermining this goal. Higher oil prices from an escalating conflict could amplify tariff-driven economic pain, potentially forcing Trump to pause tariffs, as seen with Canada and Mexico in April 2025. 

Trump’s tariffs aim to protect American industries but, simply put, they raise costs for consumers and businesses, risking inflation and reduced economic output. His “drill, baby, drill” policy seeks to boost domestic oil production (which makes sense), but tariffs on steel and other materials have increased drilling costs, undermining this very goal.

So, the political price is clear, but involves different kinds of pressure. One may recall that Trump’s provocative rhetoric, including floating an American “takeover” of Gaza, was likely a bullying-like tactic to pressure Tel Aviv into avoiding a wider war with Tehran that could disrupt oil markets—even though I’ve recently argued that the American President could actually be seriously considering to carry out such a threat, even if as Plan B. With Trump, again, nothing is ever simple. Be as it may, his tariffs create a contradiction, as mentioned: they aim to bolster the American industry but raise costs for oil producers and consumers. This makes for a politically toxic recipe, if paired with oil price spikes.

Trump campaigned on economic growth and low energy prices, so rising gas prices and inflation could obviously erode public support, especially if voters link his tariffs or foreign policy to economic pain, as seen with Biden’s approval drop during 2022’s gas price surge.

But, again, voters are not the only source of pressure: the defense industry and powerful pro-Israel lobbies could tempt Trump to pick a war to appease these compelling interests, especially after the US President has angered them enough by withdrawing from Ukraine, as I’ve argued recently. The latest American strikes (even if somewhat “symbolic” because Thehran apparently removed all enriched uranium reserves before the bombing) could then be just the beginning, for Iran is sure to retaliate, and this in turn will inflame the American war hawks.

Yet, any such step closer to a full-fledged war with Iran risks sinking Trump’s presidency in a quagmire, draining resources and triggering domestic unrest, which is already high, fueled as it is by ethnopolitical tensions and accusation of authoritarianism. Be as it may, Trump’s survival of three assassination attempts so far should underscore the domestic risks of antagonizing powerful factions, including part of the so-called “deep state”

In sum, the Iran-Israel conflict risks oil market chaos, dollar volatility, and tariff-driven economic strain. Trump would need to balance his aggressive trade and foreign policies with voter expectations for stability. From an American perspective, His “maximum pressure” on Iran could deter escalation but it always risks miscalculation (even if Trump limits Washington participation in the war to bombs, not boots—on the ground).

The US strikes on Iranian nuclear sites on Saturday have certainly made a mess of things. If Trump falls into the “necon trap” of another Middle East war, “MAGA” is all gone, fracturing an already teetering United States, perhaps irreparably so.

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This article was originally published on InfoBrics.

Uriel Araujo, PhD, is an anthropology researcher with a focus on international and ethnic conflicts. He is a regular contributor to Global Research.

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