Business economists warn of rising costs and recession risk as Iran war strains supply chains

American businesses are absorbing the economic shockwaves of the Iran war as higher energy costs and supply chain strains erode profit margins and darken the outlook for hiring and investment, according to a survey released Monday by the National Association for Business Economics (NABE).

The war, which began with U.S. and Israeli attacks on Feb. 28, has driven crude oil prices sharply higher and disrupted shipping through the Strait of Hormuz, pushing up costs for everything from fuel to raw materials. The NABE survey of economists from businesses, trade associations, and academia provides a stark quantification of the financial headwinds.

Fifty-four percent of respondents said their companies have been affected by rising energy prices; more than two-thirds reported higher material costs over the past three months, the highest share since July 2022. Nearly half said the war itself has negatively impacted their operations.

“Sales over the past three months were steady, but materials costs increased and profit margins declined,” Martha Moore, chair of the NABE survey and chief economist at the American Chemistry Council, said in a statement accompanying the report. She said expectations had “softened” across several indicators, while the outlook for prices continues to accelerate.

The weakening sentiment is coloring corporate strategies. Nearly a quarter of the economists surveyed said their firms now plan to pull back on investment and hiring over the next six months. Meanwhile, recession angst is spreading: 50% of respondents now see a greater than one-in-four probability that the U.S. enters a downturn within a year, up from 44% in January.

Although many businesses are still posting strong sales and steady profit readings for now, the survey’s forward-looking measures paint a cautious picture. Only 13% of respondents expect profits to rise in the near future—the smallest share since 2023. Sixteen percent anticipate increasing their own prices, while none plan to cut them.

The data lands against a backdrop of buoyant U.S. stock markets, where robust earnings from big tech and energy firms have kept indexes near record highs. But economists say that divergence may not last if businesses continue to pass along price hikes to consumers and dial back hiring in the face of escalating war costs.