US Economy Faces Elevated Recession Risks Amid Oil Price Surge

Key Highlights:

• The US economy expanded at an annualized rate of 0.7% in Q4 2025, marking the weakest performance since the contraction in Q1 2025.
• The economy grew at a pace of 2.1% for the full year, lower than the previous reading of 2.2%.
• Brent crude futures have jumped 39% in March, with prices spiking to $119.50 per barrel, the highest level in four years.

Economic Outlook: The US economy is facing elevated recession risks due to the ongoing Iranian conflict and sharp rise in oil prices. Mark Zandi, Chief Economist at Moody's, warns that the US economy could tip into a recession within the next 12 months. The current labor market is weak, and the surge in oil prices could further exacerbate economic pressures.

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Recession Risks: The probability of a recession starting in the next 12 months is estimated to be 49%, according to Moody's machine learning-based leading economic indicator model. The model takes into account various economic data, including labor market numbers and oil prices. Every recession since WWII, except for the pandemic recession, has been preceded by a spike in oil prices.

Global Economic Impact: The disruption in oil supplies due to the US-Iran conflict has sent prices soaring. The Strait of Hormuz, a vital passageway for oil tankers, has been largely closed, with an average of 20 million barrels per day of crude oil and oil products transiting the area in 2025. This has resulted in a significant increase in oil prices, which could have far-reaching consequences for the global economy.

Conclusion: The US economy is facing significant challenges, including a weak labor market and elevated recession risks. The ongoing Iranian conflict and sharp rise in oil prices have created a perfect storm that could push the world's largest economy closer to a recession.