The Iran war is costing American households $2,000 each, Moody’s estimates
By Matt Egan, CNN
New York (CNN) — The deeply unpopular war in the Middle East continues to deliver economic shockwaves through Main Street America.
From $4 gas and 7% mortgage rates to surging airfares, the Iran war is significantly raising the cost of living for inflation-weary consumers ahead of the midterm elections.
The conflict has cost US consumers about $265 billion since it started in late February, according to estimates from Mark Zandi, chief economist at Moody’s Analytics. That equates to about $2,000 in higher costs for the average American household.
“Many Americans have rightly connected the dots between the Iran War and the painfully high cost of living and thus want the war to end,” Zandi told CNN on Tuesday.
Not only have consumer prices increased, but paychecks are not keeping up.
Wage growth slowed in September to a five-year low. Real wages, adjusted for inflation, have declined almost every month since the Iran war started, prompting some consumers to dip into savings and rely on credit cards to get by.
Higher fuel prices cost families $1,100
Energy is at the heart of the financial fallout.
The Iran war paralyzed the Strait of Hormuz for months, preventing staggering amounts of crude oil, fuel and liquefied natural gas from exiting the Persian Gulf.
Oil flows have rebounded through that narrow waterway but the cost to get crude out of the Persian Gulf has now also skyrocketed, raising the cost of everything from gasoline and diesel to jet fuel.
Soaring energy prices – including higher home heating bills – have cost the typical family about $1,100 since the war started.
At current prices, that tally is rising by about $50 per week, Zandi estimates.
Diesel, the workhorse fuel that powers trucks, tractors and trains, remains near all-time highs.
Gasoline prices have stabilized but they are still unusually high for this time of year, at $4.34 a gallon nationally, according to AAA. That’s up from $2.98 a gallon before the conflict started.
Pump prices have been persistently high since the war began. Tuesday marked the 165th day this year with the national average at or above $4 a gallon, according to a CNN review of AAA data.
That’s easily the most for any calendar year since AAA started tracking in 2000, surpassing the prior record of 158 in 2022 during the Biden administration, much of which was attributed to Russia’s invasion of Ukraine.
The only other year where gas prices topped $4 a gallon was in 2008, when they were at or above $4 a gallon for 48 days during the summer before Lehman Brothers imploded.
Airlines jack up fares, fees
President Donald Trump has in the past argued that higher gas and diesel prices are a small price to pay for keeping Iran from getting a nuclear weapon.
“Mark Zandi is a Democrat donor who is frequently wrong – including predicting multiple recessions that never happened,” a White House spokesperson told CNN in a statement on Tuesday. “President Trump is rightfully ensuring that Iran, a country that for 47 years chanted ‘Death to America,’ can never have a nuclear weapon.”
(Zandi was an economic adviser to GOP presidential nominee John McCain in 2008.)
Skyrocketing jet fuel prices have slammed the airline industry. Airlines have responded by cutting some cheaper and less profitable routes, jacking up baggage fees and raising airfare.
The cost of airfare was up by 23% year over year as of August, according to the Bureau of Labor Statistics.
The price of heating oil, which is very similar to diesel, has also spiked. Homes using heating oil are expected to pay 21% more for the fuel than last winter, according to the US Energy Information Administration.
7% mortgage rates
Moody’s found that the second-biggest consumer hit from the Iran war is in the form of higher borrowing costs.
Higher inflation prompted the Federal Reserve to raise interest rates for the first time in three years and contributed to a sell-off in the bond market that has sharply driven up bond yields.
Those higher bond yields have brought average 30-year fixed rate mortgage rates to 7.4%, a nearly three-year high. The cost of carrying a credit card balance and getting a car loan have also increased.
Moody’s estimates that higher interest rates have cost the typical household about $360.
The military conflict itself has been costly, a price that is ultimately borne by taxpayers. The Pentagon told lawmakers in September that the Iran war has cost $45.1 billion, CNN has previously reported, citing sources familiar with the matter.
That estimate, however, is not comprehensive as it does not include the cost to repair damaged US bases or buildings in the region.
The financial costs from the Iran war likely help explain why consumer confidence is in a tailspin and why the war is so unpopular.
Just 27% of Americans approve of Trump on the economy and 28% call economic conditions good, according to a September CNN poll.
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