'Counting on weeks': Moody's warned of imminent US recession with expensive oil

The risk of recession in the United States has risen sharply after the blockage of shipping in the Strait of Hormuz and a spike in energy prices. According to Moody's chief economist Mark Zandi, if oil prices remain at current high levels for a few more weeks, an economic downturn will only be a matter of time.

"Many were convinced that a recession was inevitable amid the Fed's monetary tightening a couple years ago, vocal in their statements, but they were wrong. However, if oil prices remain high for much longer (we're talking weeks, not months), a recession will be hard to avoid," Zandi wrote in X.

The macroeconomic indicators tracked by Moody's confirm the negative trend. Before the war in Iran, the Big Three rating agency's algorithmic model estimated the probability of a recession in the U.S. on an annual horizon at 49%. Now Zandi expects the model to show a probability of 50% or higher at the next data update.

The precursors of an economic downturn are the cooling of the U.S. labor market and a sharp slowdown in GDP growth of the world's largest economy in the fourth quarter of 2025. Historical statistics also play against the markets: a spike in oil prices preceded almost all recessions since World War II, the economist noted.

The U.S. status as an energy-producing country for its own consumption only partially cushions the effects of the price shock. "High oil prices (...) continue to hit consumers hard and fast, even though they have already become increasingly cautious in spending," Zandi stated.

The sentiment of the investment community is gradually deteriorating. Several investment banks still keep the probability of recession in the conservative range of 30-40%. But analysts at Yardeni Research recently raised the risk of market collapse this year from 20% to 35%, MarketWatch writes.

An oil price at $200 would bring the probability of a global recession to 40%-60% and global stock markets would fall 15%-30% from their highs, Roth Capital Markets chief economist Michael Darda predicted. "The likelihood of a prolonged energy shock has increased," he warned.

But Morgan Stanley's Mike Wilson assessed the threat of recession as "very low" unless oil rises to $120 a barrel and holds at that level, Barron's reports. The strategist, who tends to take a more cautious stance on the markets regardless of the economic or geopolitical backdrop, believes stocks could fall another 5% or so from current levels before a recovery begins, the publication points out.

On March 17, Brent crude futures rose almost 4% to $104 per barrel, recovering the losses of the previous session. On Monday, March 16, the benchmark grade fell in price by almost 3% after several tankers safely passed through the Strait of Hormuz over the weekend, raising hopes that oil supplies from the Persian Gulf would soon resume. However, Iran has stepped up attacks on the energy infrastructure of U.S. allies in the region and the European Union has not backed U.S. President Donald Trump's call for American President Donald Trump to get involved in securing commercial shipping in the strait, Trading Economics reported.

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