Quantifying the impact of the Iran war on US inflation in World Economy News 05/05/2026 The outbreak of the Iran war in February 2026 has led to a major disruption to oil trade and a surge in oil prices. This column assesses the inflationary impact of the oil price fluctuations caused by the war. Even under a cautiously optimistic scenario in which the closure of the Strait of Hormuz lasts for one quarter, after which oil exports resume gradually, the surge in oil prices is expected to raise US headline inflation by 0.6 percentage points and core inflation by 0.2 percentage points in 2026. Drawing on our recent research (Kilian et al. 2026a), in this column we assess the inflationary impact of the oil price fluctuations caused by the 2026 Iran War, given the latest data and developments.1 There is a wide range of views about the extent and persistence of the shortfall of oil exports caused by this event. We quantify the response of US inflation and inflation expectations under a range of scenarios that policymakers and market participants are likely to be concerned with. How relevant each of these scenarios is may change as the geopolitical situation in the Middle East evolves. Challenges in assessing the inflationary impact The first challenge in addressing this question is how to determine the path of the oil price in 2026 and beyond. To date, attempts to answer this question have mainly relied on simple rules of thumb lacking formal justification, judgemental forecasts, or back-of-the-envelope calculations. For example, Krugman (2026) argues that the price of oil will reach between $155 and $372 per barrel in response to a 16% disruption of global oil supplies, given a global price elasticity of oil demand between 0.2 and 0.1. Such back-of-the-envelope calculations ignore the general equilibrium effects on the oil price. Some observers have instead pointed to the term structure of oil futures prices, which shows a meaningful decline in prices in 2026 and 2027, as