The United States is absorbing the impact of a global oil shock more effectively than many peers, with economists pointing to a decades-long shift away from manufacturing as a key reason the damage has remained contained.
As the conflict involving Iran disrupts energy flows through the Strait of Hormuz, pushing fuel costs sharply higher, the US economy is feeling the strain. Yet its structure, now dominated by services rather than heavy industry, has reduced its exposure to surging oil prices.
Oil disruption drives prices higher across sectors
The conflict has entered its ninth week and has effectively choked off a significant share of global energy supply, sending countries scrambling to secure alternative sources. In the US, gasoline prices have climbed above $4.45 per gallon on average, with some regions nearing $6, levels not seen since 2022.
Inflation has responded quickly. Core prices rose 0.7% in March, marking the largest monthly increase in three years. Food costs are also climbing, driven in part by higher fertilizer prices tied to disrupted trade routes. Staples such as tomatoes, bananas and onions have already become more expensive, with further increases expected as agricultural inputs grow costlier.
Despite these pressures, Cornell University economist Eswar Prasad argues the broader economic disruption remains limited. “The increase in prices that we are seeing at the gasoline pump, for instance, are very visible manifestations of the increase in oil prices,” he said. “But the overall disruptive effect of the economy is limited by the fact that the U.S. is not the manufacturing powerhouse it once used to be.”
The contrast with other regions is stark. Several emerging economies, including Pakistan, Indonesia and the Philippines, are nearing critical shortages. Europe also faces tightening supplies, with estimates suggesting only a few weeks of jet fuel reserves remain.
From factory floors to services and finance
The US economy’s reduced reliance on manufacturing is the result of a long structural shift. Industrial employment peaked in 1979 at 19.6 million jobs before steadily declining. By 2019, the workforce in manufacturing had dropped by roughly a third.
In its place, a service-led economy emerged, supported by deregulation in finance, expansion in professional services, and advances in technology. The transition accelerated as a more educated workforce and rising participation of women reshaped labor markets.
Recent policy efforts to revive domestic manufacturing have struggled to gain traction. Tariffs introduced to discourage overseas production have coincided with job losses in the sector, while tighter immigration rules have contributed to labor shortages. Economists say these factors have limited expansion rather than reversing long-term trends.
For countries where manufacturing still accounts for a larger share of output, the consequences of rising energy costs are more severe. Germany, for example, derives about 20% of its economic output from manufacturing, according to Eurostat. Its government has already committed €1.6bn in fuel relief as growth forecasts for 2026 have been downgraded.
Productivity gains add a second layer of resilience
Beyond structural shifts, the US has benefited from a recent surge in productivity that has outpaced other advanced economies. Since late 2019, output per worker has risen faster than in the UK, Canada and much of Europe.
This trend has helped sustain economic growth even as global conditions have deteriorated. Higher productivity allows businesses to absorb cost increases more efficiently, reducing the likelihood that price shocks translate into prolonged inflation.
Some economists link the gains to the rise of remote work and increased adoption of artificial intelligence tools, although the exact drivers remain uncertain. According to McKinsey, AI alone could add between $2.6 trillion and $4.4 trillion annually to global productivity, suggesting further gains may be possible if adoption continues.
However, the same geopolitical tensions affecting oil markets could also disrupt technology supply chains. Shortages of materials such as helium, which is used in semiconductor manufacturing, may slow the expansion of advanced computing capacity.
What to watch as the conflict continues
The trajectory of energy prices will remain the central variable for the US economy in the coming months. A prolonged disruption in global supply could push inflation higher, even if the structural impact remains contained.
Investors will also be watching whether productivity gains can continue offsetting cost pressures. If efficiency improvements stall, the economy could face a more traditional inflation-growth trade-off.
For now, the US appears better positioned than many of its industrial peers. Its reduced dependence on manufacturing, combined with strong productivity growth, has created a buffer against one of the most significant energy shocks in recent years.
