【Iran Crisis】Moody's Warning: Oil Prices Expected to Remain Elevated in Coming Weeks, US Economic Recession Probability May Exceed 50%

Moody’s Chief Economist Mark Zandi warns that as long as the key global energy corridor, the Strait of Hormuz, remains closed and oil prices stay high in the coming weeks, the U.S. economy will find it difficult to avoid a recession.

Before the Iran conflict erupted, Moody’s leading indicator built with machine learning models already showed a 49% chance of a recession in the U.S. within the next 12 months. Zandi expects that with the next model update, this probability will rise to 50% or higher. He directly stated on social media platform X, “Recession once again poses a serious threat.”

Weak labor market data is one of the main factors dragging down the outlook for the U.S. economy. Zandi pointed out that over the past few months, aside from employment indicators, many other economic data have also weakened simultaneously. Official data shows that U.S. GDP growth in Q4 2025 is only 0.7%, reflecting a clear slowdown in economic momentum. The Iran conflict further intensifies pressure, potentially bringing a new wave of inflation to consumers already facing high prices.

Rising oil prices often signal an impending recession

Zandi emphasized that historical experience shows that a surge in oil prices is often a precursor to an economic recession. Since World War II, except for the brief recession triggered by the COVID-19 pandemic in 2020, every U.S. recession has been accompanied by a significant rise in oil prices.

He noted that although rising oil prices do not necessarily cause a recession, for example, after Russia’s invasion of Ukraine in 2022, oil prices surged sharply, pushing global inflation to decades-high levels. However, at that time, the U.S. economy was supported by post-pandemic stimulus policies and still had the capacity to withstand the Federal Reserve’s rapid rate hikes.

However, Zandi believes this time is different. He specifically pointed out that before the U.S.-Iran conflict erupted, the U.S. economy was already showing signs of fatigue.

“A few years ago, after the Fed tightened monetary policy, many believed a recession was imminent, but they were wrong. However, if oil prices stay high for longer (weeks rather than months), a recession will be difficult to avoid.”

Other analyses suggest that currently, U.S. oil and natural gas production roughly meets domestic demand, helping to ease the impact of rising global energy prices. But Zandi warns that if energy prices suddenly spike, it will still deliver a “heavy and rapid” blow to consumers.