Iran war, oil price surge worsen K-shaped economy, say economists
A sign shows prices for unleaded gasoline at a Chevron gas station in Palo Alto, California, USA, on Tuesday, March 10, 2026.
David Paul Morris | Bloomberg | Getty Images
Economists have said the Iran war and the accompanying rise in oil and gasoline prices risk worsening the so-called K-shaped economy.
The term, which emerged during the Covid-19 pandemic, uses the letter K to denote diverging economic experiences: Higher-income households are increasingly better off, forming the upper arm, Low-income households fall further behind, forming the lower arm.
Economists said the rise in oil and gasoline prices acted as a tax on household spending power, hurting low-income earners more than the rich.
Nicholas Bloom, an economics professor at Stanford University, said he worries that the dynamic is fueling the K-shape of the economy.
“I think this is a big concern as an economist: inequality,” Bloom said in a speech at the Harvard Kennedy School on Monday. webinar About the economic consequences of the Iran war.
Iran war caused oil and gasoline prices to rise
A driver refuels a vehicle at a Chevron gas station on Monday, March 2, 2026 in Rodeo, California, United States.
David Paul Morris | Bloomberg | Getty Images
The war effectively halted traffic in the Strait of Hormuz, a critical shipping route for global oil supplies. The largest oil supply disruption in history.
As a result, oil prices and gasoline prices refined from crude oil rose.
Brent crude, the global benchmark for oil, was up more than 40% since the conflict began Feb. 28, reaching nearly $102 a barrel as of 2 a.m. ET on Tuesday.
The national average gas price on Tuesday reached $3.79 per gallon, up about 87 cents, or 30%, from a month ago. AAA.
According to the report, average gasoline prices are at the highest level since October 2023. US Energy Information Administration.
“This is especially difficult for low- and middle-income households with little or no financial resources, so if they have to put more of their earnings toward their gas tank, they need to cut back on other spending or pay down credit cards and other debt more slowly,” said Mark Zandi, chief economist at Moody’s.
“High gas prices act like a regressive tax as lower-income households allocate a larger share of their budgets to energy,” he said.
What is K-shaped economy?
The concept of wealth and income inequality is not new.
Stock market rallies and appreciation of home values tend to stimulate the upper tier, which disproportionately owns such assets, leaving lower-income households behind.
However, the Covid-19 epidemic As stock and housing wealth increased and low-income earners sought relief from high unemployment and rising prices, it accelerated these dynamics, giving rise to the concept of a K-shaped economy.
Before the United States and Israel attacked Iran, the high cost of living caused a growing economic crisis, which contributed to the country’s increasing bifurcation.
Now gas prices are also pushing the lower end of the K down.
Michael Klein, an economics professor at Tufts University, said high oil prices (similar to tariffs) act as “a tax on people’s ability to spend.”
In that case, households paid taxes to oil companies, not the federal government, he said during a webinar on the economic impact of the Iran war.
If a household spends more of its income on gasoline, it will have less income to buy other goods and services, Klein said. This shift in consumer consumption could have a negative impact on the U.S. economy because consumer spending makes up the bulk of the country’s gross domestic product, he said.
Oil prices impact food, travel and other industries
Travelers at William P. Hobby Airport in Houston, Texas, USA on Monday, March 9, 2026.
Mark Felix | Bloomberg | Getty Images
Experts said fluctuating oil prices have a knock-on effect that causes prices to rise in other sectors of the economy.
For example, US diesel prices on Tuesday It rose above $5 per gallon for the first time since 2022, when Russia’s invasion of Ukraine disrupted global energy markets. That increases trucking costs, for example, which could raise prices for food and other goods and services, economists said.
Global prices for jet fuel, a major cost component for airlines, rose nearly 83% last month, according to the International Air Transport Association. data As of March 13.
“Higher fuel costs will likely put further pressure on consumer prices, with downstream impacts on shipping, travel and trade,” said certified financial planner Stephen Kates, a financial analyst at Bankrate.
Most of the time, companies pass on at least some of these expenses to consumers.
