The cost of a gallon of gasoline has climbed to $3.98, a full dollar higher than just a month prior, a stark indicator that the broadening conflict in the Middle East is beginning to exert its influence on global markets. This surge in fuel prices, documented by AAA, represents just one facet of a deepening economic strain, coinciding with a Wall Street analyst’s projection that the current hostilities involving Iran could persist well beyond President Donald Trump’s initial six-week estimation.
Byron Callan, an analyst at Capital Alpha Partners, recently presented a sobering outlook, assigning only a 25% probability that the conflict would conclude by the end of May. His assessment leans towards a protracted engagement, with a 45% chance of resolution in the fall of 2026, and a 35% likelihood that fighting could extend into 2027. This perspective emerges as the conflict reaches its fourth week, despite recent signals from Trump about delaying attacks on Iranian energy infrastructure. However, Callan noted that the war appears to be both broadening and deepening, a trend that suggests further escalation rather than containment.
The geographical scope of the conflict has already expanded, with U.S. forces engaging Iran-backed militias in Iraq. Projections indicate a further spread to Yemen, where Houthi militants, aligned with Tehran, are anticipated to disrupt shipping lanes in the Red Sea. Such a development would severely impact a critical maritime artery, especially given the continued disruption at the Strait of Hormuz. With the Strait largely blocked, Saudi oil, which had emerged as an alternative supply, would face significant obstacles, granting Iran increased leverage over the global economy. The fighting has even reached the Caspian Sea, where Israel reportedly targeted Iranian ports suspected of receiving arms shipments from Russia, underscoring the widening reach of the hostilities.
This escalatory spiral, which originated with strikes on non-military targets, shows few signs of abatement, according to Callan. The economic repercussions, still in their nascent stages, are poised to intensify. Beyond the rising gasoline prices, import costs saw a 1.3% increase in February, marking the largest month-over-month jump since March 2022, a period immediately following Russia’s invasion of Ukraine. This renewed inflationary pressure, already a concern before the conflict, is contributing to a darker economic outlook. Higher inflation, in turn, has driven Treasury yields upward, leading to increased borrowing costs across the economy. Mortgage rates, for instance, have surged to their highest levels since October, making homeownership more expensive and contributing to a 10.5% plunge in mortgage application volume last week alone. The stock market’s recent downturn is also expected to produce a negative wealth effect, further dampening consumer spending, which had previously demonstrated resilience even amidst Trump’s tariffs last year.
As approximately 5,000 Marines and 3,000 soldiers deploy to the Middle East, with an additional 10,000 U.S. ground troops reportedly under consideration, Callan expresses considerable skepticism regarding Trump’s ability to deliver a decisive blow that would compel Iran to accept peace terms. Nevertheless, he assigns a 75% confidence level to the U.S. deploying ground troops to seize Iranian territory in an effort to fully reopen the Strait of Hormuz. Such an operation could involve targeting Kharg Island, responsible for 90% of Iran’s oil exports, or other strategic islands near the Strait. However, ground forces would face substantial risks from Iranian missiles and drones, weapons that have already inflicted significant damage on U.S. bases and embassies in the region.
Callan describes the notion of seizing Kharg Island as potentially “loopy,” noting that an occupying force would likely contend with an “extremely unpleasant environment” due to burning oil storage facilities. He suggests that cutting off Iranian oil exports could be achieved more effectively and with less risk through a naval blockade, an approach also advocated by other analysts, especially given Iran’s multiple oil export hubs beyond Kharg. Therefore, the occupation of islands near the Strait is seen as the most probable use of U.S. troops, rather than a large-scale invasion deep into Iran’s interior, meaning the persistent threat of drones, capable of launching from distances up to 1,500 miles, would remain. The potential involvement of troops from the United Arab Emirates or Saudi Arabia is also a possibility, driven by the shared concern among Persian Gulf neighbors over Iran’s continued control of the Strait of Hormuz, a critical passageway for one-fifth of the world’s oil and liquefied natural gas. Any ceasefire agreement that leaves Iran as the effective gatekeeper of the Strait would likely only pave the way for future conflict, a sentiment echoed by a senior UAE diplomat who recently emphasized the need for solutions ensuring lasting security and curbing threats to the region’s waterways.
