US economy shows strain from 3-month Iran conflict

New S&P surveys show the U.S. economy is showing strain from the nearly three-month-old conflict with Iran, as a flareup in inflation raises business costs and begins to pare back customer demand. The disruption to global shipping, particularly the closure of the Strait of Hormuz waterway that handles one-fifth of the world's oil, is creating significant headwinds for key sectors.

"The (Iran) conflict started in late February," Dr. Joana Colussi, a research assistant professor in Purdue University's Department of Agricultural Economics, said. "Until this time, at least in the Midwest, corn and soybean producers, around 80 percent had already bought the fertilizers for this crop season." This foresight has insulated many, but not all, from immediate price shocks.

The conflict's economic impact is most visible in surging energy and commodity prices. Diesel has climbed to over $5.70 a gallon in states like Michigan, according to AAA data, while fertilizer prices have spiked as high as 45 percent. The S&P surveys reflect this pressure, pointing to a slowdown in new orders that suggests consumer and business reticence in the face of rising costs.

At stake is the delicate balance of the U.S. economy, with the World Bank warning that a prolonged conflict could threaten global food security and introduce significant stagflationary pressures. Experts say the supply chain disruptions could persist for months, potentially driving up grocery prices and forcing the Federal Reserve to reassess its monetary policy outlook.

Farmers Brace for 45% Fertilizer Price Shock

The American agricultural sector is on the front lines of the economic fallout. While a late March survey by the National Corn Growers Association found 80 percent of growers' 2026 acreage plans were not impacted due to pre-booking fertilizers, those who did not are facing severe cost hikes. "Around 20 percent (of Midwest farmers) that put nitrogen (fertilizer) on (their farmland) in the spring or in (planting) season would be hit hard by higher prices," said Brady Holst, vice chairman of the Illinois Soybean Association.

This pressure is forcing farmers to consider long-term strategic shifts. A survey by Farmer's Keeper LLC found 21 percent of farmers plan to decrease their corn acreage, potentially shifting to soybeans, which require less nitrogen-based fertilizer. "Farming is a long-term game," Farmer’s Keeper CEO Nick Tsiolis said. "Profitability comes from balancing agronomic and budgeting decisions, not making drastic swings year to year."

Experts are now calling for a long-term expansion of domestic fertilizer production to shield against future geopolitical shocks. "This is a long-term challenge, but it is becoming increasingly necessary for both countries to remain competitive in the global grain market," Purdue's Colussi and colleague Michael Langemeier wrote, referencing the U.S. and Brazil.

Strait of Hormuz Closure Roils Energy Markets

The conflict's choke point is the Strait of Hormuz, a vital channel for global energy supply. Its closure has had immediate and widespread effects on fuel costs. "The whole world revolves around diesel fuel, so when it goes from $3 a gallon to $6 a gallon, it gets to be pretty pricey," said Jim Good, farm manager of Michigan State University's Dairy Cattle Teaching & Research Center.

This diesel price surge affects nearly every aspect of the food supply chain, from running farm machinery to the semi-trucks that transport feed and milk. Dairy farmers, already squeezed by tariffs, are particularly vulnerable to these increased operating costs.

The U.S. does produce about 60 percent of its own phosphate fertilizer, but a significant portion of imports comes from the Middle East. "We have significant exposure from the Middle East," Veronica Nigh, senior economist at The Fertilizer Institute, said during a recent seminar. While much of the product for the spring season was already in place, she noted the industry is "worrying about building those supplies for the fall application."

This article is for informational purposes only and does not constitute investment advice.