Analysts have raised their estimates of the risk of recession due to oil. EY raised its probability to 40%

The risk of recession in the US is growing as persistently high oil prices amid the military conflict in Iran threaten economic growth, analysts at EY-Parthenon said. They raised their estimate of the likelihood of a recession to 40%. Earlier this week, Goldman Sachs also increased its forecast.

"Downside risks [to the U.S. economy] have increased significantly," said EY-Parthenon chief economist Gregory Dako, his note quoted by Yahoo Finance. Disruptions in oil supplies through the Strait of Hormuz and the risk of growing damage to crude production point to a more persistent inflationary environment beyond "a short-term spike in energy prices," the economist said.

"In the current environment, we estimate a 40% chance of recession, but emphasize that these odds could rise quickly in the event of a more protracted or severe conflict in the Middle East," the analyst explains.

If the military conflict in Iran deepens and oil prices exceed $100 per barrel, it will provoke appreciation of other key commodities and tightening of financial conditions, as a result of which inflation in the U.S. could rise to 5% and real GDP growth could fall by more than 1 percentage point, which would significantly increase the risk of recession, the strategist said.

The latest Consumer Price Index (CPI) data showed a 2.4% year-over-year increase, while "core" inflation (excluding the volatile energy and food categories) jumped 2.5% from a year ago.

Earlier this week, economists at Goldman Sachs also raised the risk of a US recession from 25% to 30% amid rising oil prices and their impact on the global economy. Chief strategist Jan Hatzius noted that an upward revision in oil and gas prices would increase global overall inflation by about 1% and subtract 0.4% from global GDP growth.

"While the energy hit to U.S. growth is likely to be moderate, it coincides with tighter financial conditions and an easing of fiscal stimulus in the second half of the year," Hatzius wrote.

Hatzius expects the U.S. Federal Reserve (Fed) to cut rates in September and December, but has pushed back the timing of the Bank of England's rate cuts to 2027, while now forecasting rate hikes by the European Central Bank in April and June.

Meanwhile, betting participants on the Polymarket platform raised the probability of a U.S. recession before the end of 2026 from 23% (as of Feb. 27, before the war with Iran) to 35% as of March 25.

This article was AI-translated and verified by a human editor