In the 1993 hit movie Jurassic Park, Jeff Goldblum’s character Dr. Ian Malcolm breaks down chaos theory—often called the butterfly effect—the idea that tiny occurrences, such as a butterfly flapping its wings, can spark a cascade of far-reaching effects. “If evolution’s history has taught us anything, it’s that life can’t be held back,” he stated. “Life escapes, spreads into new areas and smashes through boundaries, in ways that hurt, or even risk harm.”
In a recent Economic Compass forecast report, KPMG’s chief economist Diane Swonk uses Goldblum’s lines from the iconic sci-fi film to show how the Iran war might create ripples throughout the global economy, eventually burdening U.S. households in an already tough economic environment.
Swonk outlines two potential scenarios for the war. The first, which she terms the “base case,” envisions the war lasting several weeks, with the Strait of Hormuz closed during that time. In this scenario, President Donald Trump eventually eases off by late March, leading oil prices to calm—but a “risk premium” stays in place if some oil production facilities are damaged. The second scenario sees the war dragging on for three to six months, with major harm to regional oil production and infrastructure, pushing oil prices above $130 a barrel. Here, oil prices would stay higher than pre-war levels for nearly a year.
If the war goes on for months and oil production is heavily disrupted, Swonk projects core inflation could hit 4.1% by year’s end—a rate not seen since May 2023. Even in the base case, though, she expects a jump in inflation in the fourth quarter of 2026, with a 3.3% year-over-year increase.
The Iran conflict adds another layer of uncertainty to an already fragile U.S. economy. Oil prices briefly surged to nearly $120 a barrel on Monday—their highest since 2022—one day after hardline Ayatollah Mojtaba Khamenei was named successor to his late father, Ali Khamenei, as Iran’s supreme leader.
Beyond oil, the job market has slowed, with poor February numbers and signs that even the most steady hiring sector—health care—is faltering. Inflation has also been tough to get back to pre-pandemic levels. Consumers are spending more carefully (except the ultra-rich), squeezed by higher food and energy costs. But even as Americans get ready for larger-than-usual tax refunds, Swonk noted it’s unclear where the U.S. economy is headed soon.
“An oil shock amid fiscal stimulus introduces another layer of complexity,” Swonk wrote. “Similar to what we saw after the pandemic, those shifts could lead to a more persistent stretch of inflation—like the one we’re still dealing with five years later.”
The butterfly effect
Oil production isn’t something you can flip on and off like a light switch, as Swonk points out. “The issue is that Gulf states’ oil production is shutting down,” she noted. “Shutting it off is easier than ramping it back up—the latter takes time, and that’s if there’s only minor damage.”
The base scenario assumes the war might end by late March. Even then, oil prices could stay high for weeks because restarting idle production and fixing infrastructure damage takes a lot of time. If the war goes on for months, prices could stay above pre-war levels until late 2026 or early 2027, the analysis shows.
When the war will actually end is unclear, since Trump has given mixed signals about his endgame. The president told Axios on Wednesday the war would end “soon,” saying there’s “practically nothing left” to target. But Iran has stated it’s prepared for a “long-term war of attrition,” hinting the conflict could go on longer than Trump’s timeline. On Monday, Trump said, “We’ve already won in many ways, but we haven’t won enough.”
Those effects would spread to other parts of the economy. Higher inflation would probably keep the Fed on the sidelines longer, pushing any further rate cuts to early 2027 if the war drags on for months, the analysis finds. Higher oil prices would also slow growth, per Swonk’s take. In the first scenario, the economist expects GDP growth to drop below 2% in the final two quarters of 2026. With a longer war, that drop would be steeper: just 1% growth in Q3 2026 and 1.4% in Q4 2026, though there’s a small rebound in Q3 2027 with 2.9% annualized growth.
No matter what happens, Swonk warns that the Middle East conflict will affect the U.S. in some way, given the current economy’s fragility. “The butterfly effect is a good reminder: in fragile systems, small changes can lead to huge, unexpected results,” she wrote.