3 reasons the U.S. economy may not blink

Fred Demers, Head Strategist, Multi-Asset Solutions, BMO Global Asset Management, is sitting in this week. Sadiq will return next week.

Market recap

Global equity markets were mixed this week as the nearly four-week-old conflict in the Middle East raged on and the Strait of Hormuz remained effectively closed.

While President Trump ultimately eased off his latest threat on Iranian energy infrastructure, the path forward remains riddled with uncertainty as the diplomatic fog remains dense.

As such, crude oil prices remain elevated, with WTI surging back above $100/bbl for a spell, fanning inflation concerns.

Iran

How is the Iran conflict affecting the outlook for growth, and have the chances of a recession risen sharply? While markets are prone to acting first and asking questions later, we believe there are several reasons why the hit to economic growth may not be as big as some are expecting. Below, I’ve highlighted three in particular.

Energy independence

The United States’ energy independence is an important consideration when evaluating the chances of a pronounced economic downturn. Crucially, the country is now a net exporter of energy in addition to being the single largest oil producer in the world—a sharp contrast to the situation in the 1970s and ’80s, to which this energy shock is often compared. While the U.S. is still a net importer of crude oil, it is the largest exporter of oil-related products.¹ A good example is the value the U.S. adds to Canadian energy: it imports crude oil from Alberta, refines it domestically, and then exports it back to Canada as gasoline. Historically speaking, energy is also cheap when adjusted for inflation—as cheap as it was in 1980, in fact. Even with the recent 30%+ price increase, inflation-adjusted crude prices are nowhere near the highs they reached in the midst of the 2008 energy shock.² In order to match those highs in real terms, oil would have to top US$200 per barrel—nearly double the current price of WTI crude.³ Because we spend less of our budget on energy now than we did in the 1970s or ’80s, the economy is not as sensitive to increases in oil prices as it was back then. U.S. natural gas prices have also barely budged since the Iran conflict began, which is important because natural gas accounts for approximately 30% of U.S. electricity production.

Bottom line: In historical terms, U.S. energy prices are not as high as they may seem, and the country’s energy independence is a key difference from previous energy shocks.

Energy intensity

Declining energy intensity is another factor that could help the economy stay resilient. Since the 1970s, reliance on fossil fuels—as measured by the amount of energy required to generate $1 of gross domestic product (GDP)—has been diminishing year over year. Currently, it stands at approximately four British Thermal Units (BTUs) of gasoline per dollar of real GDP, whereas in the 1970s, it was more than triple that number.⁴ Ironically, it was under Barack Obama’s presidency that this trend accelerated, as his administration ramped up domestic oil production. Despite misgivings about fossil fuels, he recognized the strategic importance of energy independence—a problem that countries like Canada and Germany are now grappling with amid geopolitical uncertainty.

Bottom line: A boom in domestic oil production in the U.S. has helped to diminish the amount of energy required per dollar of real GDP, which may help to insulate the economy from higher energy prices.

Wealth inequality

Readers may have heard about the ‘K-shaped’ recovery, in which different segments of the economy rebound at drastically different rates. This phenomenon extends to economic growth as well, as rising income inequality means that higher income earners have become responsible for a greater share of consumption. Essentially, this means that growth is not being captured equally—but, counterintuitively, it could also help to insulate the U.S. economy from slipping into a recession. While many consumers are sensitive to marginal increases in oil prices, those consumers represent a smaller share of the spending pie than they used to. As such, price sensitivity at the lower end won’t necessary show up in the aggregate economic statistics because the people who are buying the most aren’t the ones being hurt by an extra $5 at the gas pump. Consumer surveys are showing that people are experiencing pain from higher energy prices, which may be why many analysts are expecting growth to take a nosedive. But we’ve seen pain in similar surveys for the past several years, and yet the economy has remained resilient.

Bottom line: Wealth inequality in the United States may help to prevent a pronounced economic downturn, as higher income earners—which make up a significant percentage of consumer spending—are less likely to be affected by higher energy prices.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Pricing in geopolitical risk: Oil, inflation and the cycle’s next phase .

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Originally Posted March 30, 2026 – 3 reasons the U.S. economy may not blink