Americans are reeling from the effects of the war in Iran — now entering its ninth week — in which the chokehold on the Strait of Hormuz has virtually halted the flow of more than 20 percent of the world’s energy supplies and sent countries around the world scrambling for alternatives. In the US, the average price of gasoline exceeds US$4.45 — reaching US$6 in some regions — the highest levels since 2022.
In March, there was the biggest jump in underlying inflation in three years, of 0.7%, amid rising oil prices. Staples such as tomatoes, bananas and onions have already become more expensive since the start of the war, and with fertilizer prices rising, the cost of food is expected to continue rising as farmers struggle to afford essential chemical inputs traded across the Straits.
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But despite all this, one economist argues that the situation could be much worse. Eswar Prasad, senior professor of trade policy and economics at Cornell University, said Americans can thank the U.S.’s loss of industrial prominence — and transition to a more service-oriented economy — as the main reason the country is less dependent on oil than it was half a century ago.
“The price increase we see at gas pumps, for example, is a very visible manifestation of rising oil prices,” Prasad told Fortune. “But the overall disruptive effect on the economy is limited by the fact that the US is no longer the industrial powerhouse it once was.”
The U.S. avoided the magnitude of problems faced by other countries in the weeks after the war with Iran that shook global energy supply chains. Pakistan, Indonesia and the Philippines are counting the days until they reach critical oil shortages. According to estimates by the head of the International Energy Agency, Fatih Birol, Europe has about three weeks of jet fuel left.
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The U.S.’s position as a net oil exporter — with about 10.15 million barrels per day exported and 8.5 million imported, according to 2023 government data — also helped cushion the impact of the oil shock. But, according to Prasad, the most effective protection against an energy crisis has been decades in the making.
The downturn of American industry
World War II fueled an industrial boom in the US that peaked in 1979, when manufacturing employment reached a record 19.6 million workers.
Part of this growth occurred despite the country increasingly turning to cheaper labor abroad, in addition to the expansion of the baby boomer generation, which has become more educated and prosperous than its predecessors.
As this generation matured — and as more women entered the workforce — the US began to move away from its industrial heyday. By June 2019, manufacturing employment had fallen by more than a third (35%) from its 1979 peak, to 12.8 million jobs.
In its place, the US has undergone an office work revolution. President Jimmy Carter began a wave of deregulation, eliminating distinctions between commercial banks, savings and loan associations, and credit unions, making financial institutions more competitive and market-oriented.
Airlines’ decisions about where to operate flights are no longer dictated by the Civil Aeronautics Board, which controlled routes and fares, unlike the current Federal Aviation Administration, which is more focused on air traffic and safety. Computers and information age technology have cemented this shift.
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Despite the new foundations of the American economy, the Trump administration has attempted to revitalize the industry, implementing tariffs to discourage the transfer of manufacturing jobs abroad.
The efforts appear to have been futile, with the industry losing about 108,000 jobs in the first year of President Donald Trump’s second term. Economists attribute these losses to the tariffs themselves, suggesting that import taxes have made it difficult for American companies to expand and hire.
Other experts say that tightening immigration policies has worsened labor shortages and productive efficiency. Still, these policies and disruptions have less impact on the US GDP, as the industry has less weight in the economy compared to other countries.
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“The disruption to the US production system is, in fact, much milder than in many other countries, including advanced economies like Germany, which are still much more dependent on manufacturing than the United States,” he said. “This in itself limits the impact of the shock.”
Germany derives around 20% of the gross value of its economy from industry, a significantly higher share than the European Union average of 15.9%, according to Eurostat data.
In April, the German government agreed to provide 1.6 billion euros ($1.9 billion) in fuel price relief for businesses and consumers by reducing taxes on diesel and gasoline.
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A spring economic forecast now projects German GDP to grow 0.6% in 2026, a downward revision of 0.6 percentage points from the autumn 2025 projection.
“This war is the real cause of the problems we are facing in our own country,” Chancellor Friedrich Merz told reporters last month.
Merz has been particularly vocal about the war — much to Trump’s chagrin. Last week, Trump withdrew 5,000 American troops from Germany following comments by Merz that the US is being “humiliated” by the Iranian leadership. In an interview on Sunday, Merz played down Trump’s decision to withdraw troops and said Germany remained open to cooperating with the US and Trump.
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The advance of productivity in the USA
It’s not just a service-based economy that keeps the US resilient, Prasad said. Since the end of 2019, the country has been recording productivity growth that surpasses that of the United Kingdom, Canada and Europe.
“This is what has kept the American economy robust in an otherwise difficult period for the global economy,” Prasad said. “And that continues to make the U.S. economy much more resilient to this or any other shock that may arise, compared to other economies.”
While the reasons behind this productivity jump—possibly the growth of remote work or AI-driven automation—are still unclear to economists, higher productivity generally means higher economic growth without inflation.
If AI is primarily responsible for this advance, the shortage of helium caused by the war in Iran — an element used in the manufacture of semiconductor chips — could make it difficult to expand this technology.
Prasad was not concerned about the impact of the war on the American economy compared to its highly industrialized peers: “The US, even before the shock, was already in the best position to withstand any major global shock.”
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