Business
The War in Iran Has Upended the Global Economy. The U.S. Has Been Mostly Spared.
The fallout from two months of war in Iran is shuttering textile mills in India and Bangladesh, grounding airplanes in Ireland, Poland and Germany, and prompting energy rationing in Vietnam, South Korea and Thailand. The only country, it seems, that has been relatively spared from the economic chaos is the one that started the war: the United States.
While warning signs of a recession are flashing across countries in Asia and Europe, the United States is likely to outperform most of the world’s advanced economies. Growth is steady and unemployment low. “It’s still hard to bet against the U.S. economy,” the Royal Bank of Canada said last week.
The United Arab Emirates, one of the world’s richest countries, with sovereign wealth funds that total more than $2 trillion, has asked the United States for a financial lifeline in the wake of missile-damaged gas fields and a halt to shipping in the Strait of Hormuz.
In just eight weeks — less time than it takes to age a traditional English fruitcake — the global economic outlook has been knocked sideways.
The worst economic pain will be felt in poor countries, where consumers cannot afford higher energy prices, and governments cannot afford to provide aid to offset the costs. And as financing tightens, the cost of desperately needed borrowing for these countries increases.
Soaring prices now for fuel and fertilizer mean higher prices for food later in the year. In Africa, “food insecurity looms large,” the International Monetary Fund said last week. In the Asia-Pacific region, millions of people are at risk of falling into poverty because of the conflict, the United Nations Development Program warned.
Already, many countries in Asia are grappling with fuel shortages, which will grow only worse as the war drags on, said Raghuram Rajan, an economist at the University of Chicago and a former governor of the Reserve Bank of India.
“The shortages will start hitting more and more,” said Mr. Rajan, who formerly served in a top role at the International Monetary Fund. In many countries, the real consequences are only just beginning to be felt.
Energy inventories are running out, and some shipments have stopped. “The water’s on the boil, the frog is in the water and the temperature’s rising,” Mr. Rajan said. “And now, increasingly, you’re going to see industry shut down.”
Steel plants in India and automakers in Japan have cut production because of higher energy prices and concerns about reduced demand. Toy factories in China, already suffering from U.S. tariffs, are contending with discontent from thousands of workers angry about losing their jobs.
One morning last week, in Firozabad, a city in northern India, workers were idly milling at an open-air labor market. “Because of the war, work has dwindled,” said Muhammad Waseem, a plasterer. He was haggling with a potential employer who wanted to pay him 500 rupees ($5.30) for a construction job, significantly less than what he usually earns.
Aas Muhammad, 25, a laborer who loads bricks and cement onto trucks, had walked five miles to the market from his home. He was willing to take the 500 rupees, but even that wouldn’t go far. A kilogram of cooking gas that would normally cost 80 rupees now costs 200.
Millions of other Indian workers who usually live and work in the Emirates and Saudi Arabia, and collectively send billions of dollars in remittances home every year, are stranded abroad without work.
Shortages of other commodities that ordinarily travel through the Strait of Hormuz, like helium, aluminum and naphtha, are affecting the supplies of a dizzying array of other goods, from condoms to microchips.
Of course, the U.S. economy isn’t entirely insulated from the shock. Gas prices have jumped more than $1 a gallon since the war began, a tax on American consumers that has hit lower-income households especially hard.
On Wall Street, banks have marked their growth forecasts down and their inflation forecasts up since the war began and have all but given up on the possibility of further interest rate cuts before the fall at the earliest.
Compared with the rest of the world, though, the impact on the domestic economy has been muted. Consumer spending remains strong, layoffs remain low and forecasters still expect solid growth this year.
Economists say it would take a much more significant spike in oil prices, perhaps as high as $150 a barrel, for them to begin worrying seriously about the possibility of a recession in the United States.
That is not the case elsewhere, where the dreaded combination of slower growth and higher inflation is already raising alarms about stagflation.
Around the world, scarcity and high prices are setting off a worrying cycle of reduced economic activity: High prices lower the demand for fuel, and the lower demand, in turn, shrinks production, employment and spending.
The German airline Lufthansa canceled 20,000 flights scheduled for this summer. As jet fuel prices have doubled, all 20 of the world’s top air carriers have cut at least some flights, according to Freightos, a digital shipping marketplace. Fewer flights cut sharply into tourism and business travel, reducing spending at hotels, restaurants and retailers.
For the United States, the biggest advantage is that, unlike most of its global peers, it produces more oil and gas than it consumes. That doesn’t mean it is unaffected by what happens in global energy markets, but it helps dampen the impact.
The U.S. economy is also heavily based on services and depends relatively little on the energy-intensive manufacturing industries that have been hit hardest by the spike in oil prices. And it went into the war with a stronger economy than many other countries, giving it more of a buffer against a slowdown.
“We’re not feeling the same pain the rest of the world is,” said Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University.
“In a shock this large, the physical shortages are showing up in Asia, and they’re trickling through to Europe,” he added. “We’re the last to feel the effects.”
The toll on the U.S. economy will grow if the war drags on. Higher fuel prices will further raise the cost of shipping, and that could drive up prices for other consumer goods.
“We don’t know how long this shock will last, and I think if it persists we’ll probably be having a very different conversation six months from now,” said Ben Harris, a Brookings Institution economist who served as chief economist at the Treasury Department under the Biden administration.
Even if the war were to end tomorrow, most energy executives and political analysts doubt that traffic through the Strait of Hormuz, a critically important shipping lane for oil and gas, will ever return to the way it was before. The war has demonstrated how easily free passage can be stopped, raising risks and costs.
The shortfall caused by the halt in oil and gas production and the missile damage inflicted on infrastructure also mean that oil prices are likely to remain elevated or rise over the next four years, according to High Frequency Economics, a research consulting firm.
“We are more resilient to energy shocks, but I don’t think that’s going to last,” said Adam Posen, president of the Peterson Institute for International Economics.
Many countries, including allies, had already been re-evaluating their relationship because of President Trump’s punitive trade policies and erratic behavior, including his demands to take over Greenland.
Now American pre-eminence has been undercut by Mr. Trump’s decision to start a war with Iran that has had severe economic consequences for much of the world, Mr. Posen said.
“As a snapshot at the moment, the U.S. is less directly troubled,” Mr. Posen added. “I wouldn’t make too much of that.”
Keith Bradsher contributed reporting from Beijing, and Alex Travelli from Firozabad, India.
California, the epicenter of the artificial intelligence boom, continues to grow its economy faster than the nation, but more people are losing their jobs and the cost of living remains high.
New economic indicators released this week show how the Golden State is grappling with the effects of the Iran war, as well as an AI explosion, which is driving huge investments as well as layoffs.
The state’s unemployment rate reached 5.3% in April, roughly 1 percentage point higher than the nation’s. California’s unemployment rate is expected to peak at 5.6% later this year, according to the UCLA Anderson Forecast released this week.
The state outpaced the nation in economic growth in the fourth quarter of 2025. It probably continued to outgrow the country in the first three months of this year, the report said.
“Income and output will continue to grow faster than the U.S. even as employment growth is tepid,” senior economist Jerry Nickelsburg wrote in the forecast. “Once past the current weakness, expected by the middle of next year, a tech, durable goods manufacturing, and construction resurgence should lead to superior growth in both employment and income in the Golden State once again.”
The state’s growth is being bolstered by many local companies that are attracting and spending hundreds of billions of dollars in the race to build the software and infrastructure needed for AI. However, there are signs that the same race may be leading to fewer jobs in some sectors.
From January to May, U.S. tech employers announced 123,653 job cuts, up 66% from the same period a year earlier, according to a report Thursday by global outplacement and executive coaching firm Challenger, Gray & Christmas. California had close to 77,000 job cuts across all sectors, double the number of any other state.
Although AI was cited more often than any other reason for cuts, the layoffs haven’t been as bad as the pessimists feared, said Andy Challenger, a labor and workplace expert and chief revenue officer of Challenger, Gray & Christmas.
“AI isn’t yet the jobpocalypse some predicted,” he said in a statement. “Like spreadsheets and email before it, the technology will ultimately make workers more productive.”
California has seen job growth in sectors including healthcare and social services. But entertainment, tech and manufacturing businesses have been cutting back.
UCLA’s outlook paints a mixed picture of California’s future, one filled with uncertainty as the Iran war pushes up fuel prices, inflation rises, government policy changes and tariffs disrupt supply chains.
The state is particularly vulnerable to the effect of the war on Iran because it uses pricey low-emissions gasoline, and California ports accept cargo on ships that require large amounts of more expensive oil, according to the forecast.
California also is more dependent on oil from outside the country than other states.
The Iran war has caused gas prices to jump. Above, prices are at and over $6 a gallon at a station in Los Angeles on June, 2, 2026.
(Justin Sullivan / Getty Images)
It’s still too early to predict the fallout from the war on Iran, but economists expect it to negatively affect employment by the end of this year and into 2027, the quarterly forecast from UCLA said. It projected that national real GDP growth would shrink from around 2.3% this year to 1.8% next year.
The UCLA report did not provide a state GDP forecast, but said early indicators suggest California continues to outperform the country. Last year, the national real GDP growth rate was around 2%, the report said. California’s was closer to 2.5%, according to data from the U.S. Bureau of Economic Analysis.
Some are concerned that AI could worsen what’s called a “K-shaped” economy, in which the rich see growth and most other people struggle with stagnating opportunities. In California, it could also lead to an “E-shaped” economy, in which low, medium and high-income people each see slight growth.
That depends on whether AI ends up helping workers or replacing them, economist William Yu said.
“If it’s labor substitution, we are going to see this [as] more of a K-shaped economy. If it’s more of labor augmentation, we’re going to see more of [an] E-shaped economy,” he said at a conference about the report.
Tech companies say they are using AI to do more with fewer people. Yu said a lot of the AI spending is going into building out AI data centers rather than hiring.
Citing data from job search website Indeed, AI appears to be slowing down growth in software, information technology, marketing and media job postings, he said. But demand for civil and electrical engineers remains high. AI might not be affecting those roles, or reindustrialization policies are boosting hiring in those areas.
The Kars4Kids jingle is back on the air in California after being ordered off the airwaves last month.
The catchy jingle that has been getting stuck in heads for nearly three decades was pulled from the air after a California man took Kars4Kids to court for false advertising.
The man said he donated an old car to the charity, believing it would be used to benefit children in need. He was unaware that Kars4Kids gives the donations to another organization, Oorah, that uses the money to fund Jewish youth trips to Israel.
The Orange County court originally ruled the jingle a violation of California’s false advertising law for failing to disclose its religious affiliations, and it was subsequently pulled from the airwaves. Kars4Kids filed an appeal, and the court has ruled the jingle can stay on the air throughout the appeals process.
“Kars4Kids applauds today’s court ruling allowing its ads to continue airing in California while the appeals process continues,” a spokesperson for Kars4Kids said. “The uninterrupted airing of its ads will enable the charity to continue funding its programs for children and families. We believe the lower court’s findings on the facts and the law were deeply flawed, and we look forward to pursuing a broad appeal of that decision.”
Kars4Kids has run into allegations of false advertising before. Oregon and Pennsylvania also took the charity to court over the misleading jingle in 2009, resulting in a $130,000 fine and a requirement to disclose its affiliations in all advertisements.
A Kars4Kids spokesperson said last month that its website clearly states its Jewish affiliation.
“We believe this case was nothing more than a lawyer-driven attempt to siphon off charitable funds for their own gain,” the spokesperson said. “The law and the facts are clearly on our side.”
The nonprofit using the funds gathered by Kars4Kids has also previously used the donations for a matchmaking program for Jewish young adults and to purchase a $16.5 million building in Israel.
While the jingle could be pulled from the air again depending on the result of the appeal, for now, it will remain a part of your morning commute in California.
Texas has dethroned California as the state with the most Fortune 500 companies.
The Fortune 500 list ranks the largest U.S. companies by revenue. This year, 57 of the top companies are headquartered in Texas, compared with California’s 56. It’s a reversal from two years ago when the Golden State had the pole position.
The Lone Star State was quick to claim the victory.
“Texas is the undisputed headquarters of headquarters,” Texas Gov. Greg Abbott said in a news release responding to the ranking, which was announced Wednesday. “The world’s leading businesses invest with confidence in Texas because of our welcoming business climate, predictable regulatory environment, and skilled and growing workforce. People and businesses are choosing Texas because Texas works.”
California’s corporate haters say they try to avoid the state’s high costs, income taxes and strict regulations, but the western state is still a top money maker.
“California dominates on nearly every other measure: its Fortune 500 companies are the most profitable ($647 billion), most valuable ($20 trillion), and employ more people than any other state (2.8 million workers),” Fortune said in a news release.
Indeed, despite the naysayers, Californian companies have been leading the world in developing artificial intelligence technology as well as the latest in space and defense tech.
The state is home to nearly 400 “unicorns,” or billion-dollar startups — more than any other state, according to CB Insights. It also gobbled up nearly two-thirds of U.S. venture capital last year, with San Francisco Bay Area startups such as OpenAI leading the way, according to the business information platform Crunchbase.
Texas and California have been in a tug-of-war for the crown. In 2024, after a decade, California bagged the top spot with 57 companies on the list, while Texas and New York tied in second with 52 companies each.
Healthcare giant McKesson, and oil companies Exxon Mobil and Chevron, were the top three Texas companies on the list. Apple, Alphabet, and Nvidia took the top positions in California.
Tesla, which relocated to Austin from Palo Alto in 2021, ranked 43rd on the list. Other major Fortune 500 companies that left California included Oracle, Charles Schwab and Chevron.
California’s population exodus has yet to fully recover from the pandemic times in 2020. The state’s high cost of living and regulatory environment are often cited as reasons for residents opting to move.
More recently, California’s proposal for a one-time tax on billionaires prompted some, including Peter Thiel and Larry Page, to open new offices outside the state.
Some smaller companies are also leaving the state, but nearly the same number are being set up. From 2011 to 2021, the state lost a net 2% of its total of around 47,000 headquarters, according to the Public Policy Institute of California.
“There is some indication of an uptick in headquarters leaving California, but it is really small in comparison to other firm trends,” said Sarah E. Bohn, vice president of the Public Policy Institute of California. “The rate of leaving is slightly higher among bigger firms.”
Bohn, in a recent report, cautioned that focusing solely on relocations overlooks the range of positive and negative forces driving headquarters activity and can misrepresent businesses’ desire and ability to operate headquarters in California and the broader impact on jobs.
Behind Texas and California was New York, home to 53 Fortune 500 companies this year. The fourth spot was tied between Illinois and Ohio, with 29 companies each.
Amazon was the top company on the list, ending Walmart’s 13-year reign at the top of the annual Fortune 500 companies list. Amazon’s 2025 revenue was $716.9 billion, compared with Walmart’s $713.2 billion.
Seattle-headquartered Amazon joined Exxon Mobil, General Motors, and Walmart as the only four companies to have ever held the top position since Fortune began publishing the data in 1955.
Together, the 500 companies on the list roped in $21 trillion in revenue and $2.1 trillion in profits last year, employing 30.5 million people worldwide.
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