Americans are paying a growing financial price for Iran war

The start of the US-Israeli military strikes on Iran on 28 February seem a long time ago now but the impact on people's pockets is only now starting to fully filter through.

While the world is paying a price for the disruption the ongoing conflict has caused to energy supplies, the latest inflation figures from the United States clearly show that the world's biggest oil exporter is not immune to the economic pain it has caused.

The measure of US consumer prices rose by 0.5 percentage points in May to a new rolling 12-month rate of 4.2% - the highest print since April 2023.

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It marked the third monthly increase in the headline rate, which has been consistently driven up by higher fuel prices being passed on to both drivers and plane passengers.

The latest data showed gasoline costs up 40% and fuel oil up 59%, with other notable upward contributions from food and other consumer staples.

The release of the figures coincided with fresh financial market wobbles over the prospects for peace in the Middle East, with fresh attacks by both the US and Iran weighing on stock and bond markets.

Investors worry not just about the possibility of an extended closure of the Strait of Hormuz shipping route for oil and natural gas, but also about rising borrowing costs as central banks are forced to react to accelerating price growth.

The most recent wage data showed average annual rises just above 3%, signalling an intensified squeeze on household spending power when compared to the surging rate of inflation.

It all represents a mounting political challenge for Donald Trump as mid-term elections loom closer.

Financial market commentators suggested volatility this week signalled a shift in patience with the US president's claims, of several months, that Iran was close to making a deal to end the war and reopen the strait.

He has repeated no such claim following the latest strikes.

The closer we get to winter, with no end to hostilities in sight, the more we are likely to see oil and natural gas costs rise.

The strait, after all, is used to handling a fifth of global supplies.

Research by Barclays this week forecast that Brent crude, trading on Wednesday at $92 a barrel, will average $100 a barrel in 2026 and $88 a barrel in 2027, assuming freedom of navigation through the strait is restored by the end of this month.

It predicted a further delay until the end of August would raise the averages to $110 a barrel in 2026 and $105 in 2027.

It suggests, partly because of damage to energy infrastructure in the Gulf, that there will be no quick return to pre-war levels just above $72 even if peace was achieved tomorrow.

The point was underlined by the boss of Shell, Wael Sawan, who told a conference on Wednesday that restoring a balanced crude oil market would take a year and possibly longer at the end of the conflict. He blamed heavy drawdowns from reserves to make up for lost output.

UK inflation figures for May are due next week and expected to climb, after April's decline in the energy price cap outweighed the impact from rising fuel costs.

Rising inflation measures place the prospects for interest rate cuts, expected ahead of the war, firmly in the rear-view mirror.

London Stock Exchange Group data shows financial market participants expect at least one increase in the UK and US before the year is out and two from the European Central Bank.

Higher borrowing costs are designed to cool economic activity, helping the pace of price growth ease.

The problem for nations across the continent of Europe is that they can least afford the knock-on effects of America's war because they are importers of oil and gas.

We are at the mercy of the international scramble to secure supplies while the US is pumping at record levels, helping underpin projections that its economy will grow by around 2% this year.

It's an enviable forecast for those of us gazing across the Atlantic.

Americans might be feeling the pinch but the longer the war drags on, the more we on these shores will pay a heavier price.

(c) Sky News 2026: Americans are paying a growing financial price for Iran war