Bank of America economists caution that prolonged oil prices exceeding $100 per barrel could precipitate significant economic disruptions in the United States following recent geopolitical tensions. West Texas Intermediate futures recently jumped 35%, nearing a critical threshold identified by global economist Claudio Irigoyen.
Oil prices have risen sharply since strikes involving Iran last weekend, with benchmark U.S. crude closing near $90.90 per barrel on Friday. Economist Claudio Irigoyen noted that while current levels might fade inflation concerns, persistent prices above $100 would become more concerning due to non-linear economic effects.
The economy is currently sensitive to market fluctuations as higher-income consumers drive spending through stock holdings. However, a sustained downturn could cool this spending, while lower-income households face immediate hardship from rising gasoline costs, which recently hit $3.25 per gallon.
Surging energy prices could also create bottlenecks for artificial intelligence capital spending. Major technology projects, such as data center buildouts by Microsoft and Google-parent Alphabet, might face delays, turning a tailwind into a headwind for growth.
Consequently, sustained high energy costs could reduce GDP growth by more than 0.6 percentage points this year. If oil prices were to double, Irigoyen suggests a recession is likely to ensue, potentially causing lasting impacts on credit access and spending power.