How America’s Shift from Manufacturing Shields It from Iran War’s Energy Crisis

As the Iran war enters its ninth week, the global energy supply faces severe disruption with over 20% of the world’s oil flow halted at the Strait of Hormuz. This chokehold has sent gas prices soaring in the U.S., with averages surpassing $4.45 per gallon and spikes nearing $6 in some regions, triggering inflation and rising food costs nationwide.

Despite these challenges, the U.S. economy has weathered the storm better than many others. Experts attribute this resilience to America’s long-term shift away from manufacturing toward a service-driven economy and its status as a net oil exporter, cushioning the blow from the energy crisis unlike heavily industrialized nations.

Why the Iran War’s Energy Shock Hits the U.S. Differently

The Iran conflict has disrupted global oil supplies, pushing prices higher and sparking inflation worldwide. In the U.S., gas prices have reached levels not seen since 2022, while food staples are becoming more expensive due to rising fertilizer costs linked to the strait’s blockade. However, unlike countries such as Pakistan, Indonesia, and the Philippines facing critical shortages, the U.S. has managed to avoid a full-blown energy crisis.

Cornell economist Eswar Prasad explains that America’s diminished reliance on manufacturing and its role as a net oil exporter have been key factors in limiting economic disruption. The U.S. exports more oil than it imports, softening the impact of global supply shocks.

The Decline of U.S. Manufacturing: A Hidden Economic Shield

Once the world’s manufacturing powerhouse, the U.S. has seen a steady decline in factory jobs since their peak in 1979. Manufacturing employment dropped by over a third by 2019, as the economy transitioned toward services, finance, and technology sectors. This shift has inadvertently insulated the U.S. from energy shocks that heavily impact manufacturing-dependent economies.

Efforts to revive manufacturing through tariffs and immigration policies under the Trump administration have largely failed, with job losses continuing. Yet, this decline has made the U.S. economy less vulnerable to oil price spikes compared to countries like Germany, where manufacturing accounts for a significant portion of GDP.

“The disruption to the U.S. production system is really much milder than in many other countries, including advanced economies such as Germany, that are still much more reliant on manufacturing than the United States is.”—Eswar Prasad, Cornell University

Germany’s Struggle Highlights U.S. Advantage

Germany, heavily dependent on manufacturing, has faced severe economic challenges due to soaring energy costs. The government has introduced fuel price relief measures, yet forecasts predict slower GDP growth. Chancellor Friedrich Merz has openly blamed the Iran war for Germany’s economic woes, contrasting with the U.S. experience.

Tensions between the U.S. and Germany have also surfaced, with troop withdrawals following Merz’s critical remarks about Iran. Despite this, Germany remains open to cooperation with the U.S., underscoring the complex geopolitical dynamics at play.

Productivity Gains Bolster U.S. Economic Resilience

Beyond structural economic shifts, the U.S. has experienced a surge in productivity since late 2019, outpacing other advanced economies. Factors such as remote work and AI-driven automation may be driving this growth, helping the economy absorb shocks without triggering inflation.

While concerns exist that shortages of materials like helium—critical for semiconductor manufacturing—could slow technological advances, the overall productivity boost remains a key buffer against the Iran war’s economic fallout.

“The U.S., even before the shock, was in the best position to withstand any major global shock.”—Eswar Prasad, Cornell University

Looking Ahead: What This Means for the U.S. Economy

The ongoing Iran war continues to test global energy markets and economic stability. However, America’s decades-long economic transformation and recent productivity gains position it to better weather these challenges than many peers. Policymakers and business leaders will need to monitor supply chain vulnerabilities and invest in innovation to sustain this resilience.

Events like the upcoming Fortune 500 Innovation Forum will play a crucial role in shaping strategies to navigate the evolving economic landscape and ensure the U.S. remains competitive amid global uncertainties.