Marketplace - Overnight, a wartime economy

Episode Date: March 2, 2026

It’s too early to know how long the U.S. and Israel war against Iran will last. One certainty? All-out war comes at a cost. Already, Qatar has cut natural gas production, bond yields and gas prices are up, and shipping firms are rerouting cargo. The extent of the economic impact, however, remains to be seen. In this episode, we break down how the conflict is already shaping the economy and what to expect if it continues. Every story has an economic angle. Want some in your inbox? Subscribe to our daily or weekly newsletter.Marketplace is more than a radio show. Check out our original reporting and financial literacy content at marketplace.org — and consider making an investment in our future.

In which the theme of the program today is risk from American public media. This is Marketplace. In Los Angeles, I'm Kyle Rizzdahl. It is Monday today. This one is the second day of March. It is always to have you along, everybody. With a nod to Donald Rumsfeld, a little bit ironically, but also historically and syntactically, what we have after the events of the past 72 or so hours is a long,

long, long catalog of known and unknown unknowns. And they are making the global economy a bit riskier today than it was on Friday afternoon. Since you already know what the news is, we are going to talk first today about what the news means for us in our particular line of work, and we're going to do it with Robin Brooks. He's a senior fellow at the Brookings Institution. Robin, thanks for coming on the program. Great to be with you, Kai. As we sit here, 72-ish hours later, how do you perceive the macroeconomic state of risk right now?

You know, this is a great question. And in a way, the U.S. economy is a puzzle because we've been throwing all these shocks at it. And the U.S. has been doing just fine. We threw huge tariffs at it just fine. We have massively changed immigration policy. The U.S. has kept trucking. The disconcerting thing is that no one really understands why the U.S. economy hasn't fallen out of bed yet. No one really knows.

And so now we have a big shock to oil. Cost of living is a major issue for many U.S. households. The U.S. consumer has been holding the U.S. economy up. So risk and risk of recession have been going up, and that's really worrying. I'm going to continue with my somewhat tortured metaphor here about Donald Rumsfeld. Is this perhaps the mother of all shocks so far in the Trump administration? You know, so let's talk about the oil market and how big this is, first of all. So when Russia invaded Ukraine in 2022, Russia is a major oil producer.

globally, they produce 10 million barrels of oil a day. The day of the invasion, oil prices rose 2%. Today, first day of trading after news of war with Iran, oil prices are up 8%. So this is a major shock. We have about 20% of oil globally that transits, the Straits of Hormuz. So the potential for negative spillovers, risk to the U.S. economy is very, very real. Acknowledging that you are a global economics and politics specialist, not a watcher of the Federal Reserve, I'm going to throw you this question anyway. Imagine you are Kevin Warsh, and if everything goes the way the president wants, Warsh is going to come in in May, and the president's going to be squeezing him to lower interest rates,

and you are now, because of the president's actions, going to be on something of the horns of a dilemma, yes? totally the worst word for any central banker is stagflation right it's a place where the economy needs rate cuts but you have high inflation maybe rising inflation and so it becomes really hard to justify those cuts and you just don't want to be in this place and kai if you look at what markets are pricing today if you look at federal funds futures which price basically what how much the market thinks the Fed will cut interest rates. They've been pairing back cuts because they think the Fed will be precisely torn between

these two things. It is even being bandied about that there may be a raise next time and increase in rates. Totally. Yeah, yeah. Inflation has been running above target anyway. It is proving to be very sticky. The most recent inflation prints in PCE, which is one of the most widely followed inflation garages and producer price inflation were on the hot.

side. So it's a major issue. We have a minute left. I'm going to turn it a little bit sideways here. And I want to ask you about this thing that, you know, sort of early in the Trump administration, what was a real thing? This all sell America trade, right? People were selling dollar. They were selling bonds. What is the risk premium now in dealing with the United States of America as the global unreliable actor? So great question. The dollar rallied today. This is like a short-term knee-jerk, buy protection. So the good news is, in the very short term, the dollar is still kind of a safe haven. But in the back of every investor's mind is the question, why did Trump go to war with Iran? Why are we at war with the United States? And it raises the question about

governance and whether governance in the United States is deteriorating. That's bad for the reserve currency status of the dollar. Robin Brooks at Brookings. Robin, thank you so much, really appreciate your time. Great to be with you. Wall Street, to start the week, had you been expecting a big reaction from equities, I don't know what to tell you, honestly. Details numbers when we get there.

When risk is the economic through line as it is today, you see reactions in a couple of predictable places. First of all, gold, and in fact, it popped another 2% today above 5,300. $150 an ounce. Another place you see risk playing out is in bonds. U.S. government bonds specifically. And usually what happens is that investors dump their money into that safest of safe havens, which pushes bond prices higher and yields lower. Today, though, yields have been rising, which is a sign that investors are actually selling U.S. Treasuries. Marketplace Justin Howe explains what's going on there. Over the last few days, investors had been piling money into treasury bonds, because in uncertain times,

other asset classes will tend to be a lot more volatile than treasury, so it's a place to put your money when you're being cautious. Kathy Jones is Chief Fixed Income strategist with the Schwab Center for Financial Research. Charles Schwab is a marketplace underwriter. She says by this morning, however, investors realized that stocks and other kinds of assets weren't reacting as strongly as investors expected. So stocks were lower, but not maybe as much as people thought. Oil prices are up about 6 or 7 percent, but maybe not the 10 or 15 or 20 percent that they had feared might happen. Bon investors still have plenty to worry about. Jones says, for one, a prolonged conflict could be costly.

That is a concern because we already have a large and rising fiscal deficit. If we add to it by more defense spending, then that is going to, you know, create expectations that we have to issue even more bonds to fund that. And if investors think the government's going to flood the market with new bonds, they're going to demand to be paid higher interest. And higher treasury yields could cause all kinds of borrowing to get more expensive. Randy Vogel is head of fixed income at Wilmington Trust. He says another reason investors are demanding higher rates is because they want to be compensated

in case prices pick up. Higher oil prices leads to more inflation. And more inflation leads to higher interest rates. Rising energy prices will likely continue to push treasury yields higher, says Winnie Caesar, head of strategy at the research company credit sites. But Caesar says there's also a point where energy prices could start to whittle away at the economy, because if prices rise too high? Consumers are not going to have the ability to withstand that price increase,

and demand is just going to kind of fall off a cliff. Caesar says corporations would feel the pinch, too. For example, if you are an airline and all of a sudden oil prices, are double what you were expecting, that's probably going to have some sort of impact on your hiring plans for the year. Caesar says if that were to happen, she'd expect treasury yields to fall. I'm Justin Howe for Marketplace. There is a timing thing here that we have to address.

It is very early in this war. And while acknowledging all the deaths and the human tragedy, we just don't know how much longer it's going to last. which means we don't really know how long it's going to take for its effects to be felt. That's the assignment marketplaces Kristen Schwab got this morning. Let's start with one thing that is tangible today. The average price for a gallon of regular gas is just shy of three bucks, according to AAA. Tom Closa, chief analyst at Gulf Oil, says it'll go up a bit.

It looks like we're going to go in relatively short order to about 310 to 325. Some of this is seasonal and expected. But if the conflict with Iran continues deeper into March and April, Closa says prices might peak as high as $3.50 a gallon. It very much is the rocket and feather. Prices go up like a rocket. If this is all over with in a few months, they'll come down like a feather. A few months of temporary pain to the wallet.

But Mark Sandy, chief economist at Moody's Analytics, says that's enough to make consumers who are all reds, price sensitive because of years of inflation, even more nervous. The only thing where prices really have not risen significantly and really aren't bothering people is the cost of buying a gallon of regular unleaded. 70% of consumers say gas prices affect their feelings about the economy, according to the National Association of Convenience Stores. I think I'd be worried about what kind of impact this might have on the collective psyche. Because consumers drive the economy. The war may also weigh on corporate psychics. Adam Pozen, president of the Peterson Institute for International Economics, says a prolonged

conflict could mean higher shipping costs, delayed cargo, and elevated insurance premiums. I think the business side of it in terms of passing on. As in passing on the costs to consumers. It would probably take a little longer, more like two, three, four months. Pozen says companies had already been planning to raise prices this year because of tariffs, after holding off for most of 2025. And this gives them further cover to do it. Which could lead to a temporary spike in inflation.

The thing is, we do not know the length or scope of this war, so we can't predict how mild or major the economic effects will be. But it does add another layer of uncertainty onto an already uncertain economy. I'm Kristen Schwab for Marketplace. The energy story, Robin Brooks and I touched on a little bit today. Oil, of course, the headline, do not sleep on natural gas, though. Cutter, one of the world's biggest producers of liquefied natural gas has just stopped producing. You apply that supply demand equation, and you will see that natural gas prices have soared in Europe and Asia, both major importers of Qatarian natural gas. Marketplace is Elizabeth Trova.

Cover covers global energy for us. Without that natural gas, Asia and Europe will need to get their LNG somewhere, says Gregory Brew with Eurasia group. LNG buyers such as China, Japan, and South Korea will be affected by a shutoff in Qatari supply if the shutoff lasts more than a day or two. Europe is in an especially vulnerable position. Europe has relatively low natural gas inventories right now. It's coming out of the winter months. It could be a deja Ja-Javu moment for Europe, which paid high energy and heating costs in 2022 after losing Russian natural gas supply, says Ed Cox with ICIS. You had these huge increases after Russian invasion of Ukraine, really damaged businesses

in Europe and in Asia as well hurt consumers at home. And that just speaks to the dependency that Europe has now on imported LNG. If sustained for weeks, Columbia universities on Sophie Gore-Bos says this could be a real problem for Europeans. You are going to have an impact on gas prices. You are going to have an impact on heating bills. You are going to have an impact on electricity bills. And she says there's no quick replacement for missing natural gas since LNG facilities around the globe are running at capacity.

That's including in the U.S., the number one LNG exporter, says Tom Seng with Texas Christian University. We're maxed out. You can't just boost LNG production from, its current levels, if you're already running at 100 percent. And in the United States, you know, we're waiting on additional projects to be constructed. More terminals that liquefying natural gas are needed in order to increase exports of LNG. But that export capacity is expected to grow significantly in the U.S. Not overnight, but in the next few years. Last week, President Trump

and Energy Secretary Chris Wright were in Corpus Christi when an expansion of an LNG export terminal there was approved. I'm Elizabeth Troval for Marketplace. Coming up. And now we're into a phase where it's like, I don't know what's going to happen any given day. Oh yeah, I know that feeling. First though, let's do the numbers. Dow Industrials gave up 73 points today, about two-tenths percent, 48,904. The NASDAQ picked up 80 points for tenths percent, 22,748. The S&P 500, we'll call it flat, up two points, two-point. if you really want to know, 68 and 81. The war, as you might imagine,

has caused huge flight disruption across the Middle East. Airlines tumbled today. United declined 2.9 percent, delta down 2 and 2 tenths percent. American Airlines off four and two-tenths of one percent. On the other hand, defense stocks, hello. Here's how the federal government's top contractors for the year 2025 did. Lato's Holdings, that's a defense technology firm expanded 2.5 percent. Lockheed Martin, up three and four-tenths percent.

Axon Enterprises. That's a weapons maker. He spent at 5.5% to data analytics firm Palantir of 5 and 8 tenths of 1% on the day. Bond prices, as Justin was saying, they fell. The yield on the 10-year T-note rose 4.04%. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl.

We are going to spend the second part of the program today on how things get from point A to point B in a global economy that has just had a large and deadly wrench thrown in the works. The Middle East is, among other things, a crossroads of global trade. Oil and gas, yes, sure, we talked about that. But goods writ large are trans-ship through that region, and changes are already happening. Some of the big shipping giants have modified their routes. Mersk is rerouting its ships around Africa. Hopogloid is doing the same thing and applying a war-risk surcharge to boot.

Marketplace of Carla Javier has more on that one. Global shipping likes to pass through the most direct route. to minimize costs and time, says Eugene Goltz at Notre Dame. And the shortest routes, often, say, between Asia and Europe, might go past to the Persian Gulf, through the Gulf of Oman, through the Red Sea. Shipping companies are avoiding the Suez Canal and the Red Sea, even though they don't border Iran. The Iran-backed Houthi rebels in Yemen have attacked shipping vessels there before, and there's fears they may again.

Ben Slupeki is an analyst at Morningstar. As conflict kind of emerges in the Middle East, it's for the safety of their crew, their passengers, the cargo. They have to reroute around the Cape of Good Hope down around the bottom of Africa. He says it's not unusual for these types of companies to have to adapt to operating conditions, whether it's weather or conflict. Variable pricing and surcharges are in the regular course of business, and these surcharges can benefit the company. It's not something that these companies want to be doing very frequently, but at At the end of the day, it is kind of a tailwind for them. For one thing, he says, rerouting lengthens the trip.

Adding an extra 10 days to the journey, in essence, kind of artificially reduces supply these ships, driving up the price to buy it's sitting in charge. Fees and surcharges, he says, also help cover added costs, including more fuel and paying crew for a longer journey. Whether and how these additional costs get past to U.S. consumers depends on how long this lasts, and whether costs are absorbed along the supply chain. but it's likely to impact consumers closer to the conflict. The shipping company's Maerskin, Hapag Lloyd, also suspended vessel crossings in the Strait of Hormuz, which connects to the Persian Gulf.

Eugene Goltz at Notre Dame again. If you live at the end of the Gulf in Kuwait or Iraq and you're hoping for some imports, you know, they could face higher prices, but global markets not affected a lot. The main impacts as Goltz sees them will not be on cargo, but oil and gas. I'm Carla Javier for Marketplace. The thing about the global economy, of course, is that it's global. So much like squeezing a balloon, something happens in one part of it. That balloon inevitably bulges out someplace else.

And that, well, it gets us to, and I want you to take a deep breath now because I know you thought you were done hearing about this after the pandemic. But the supply chain has entered the chat. Willie Shee is professor of management practice at the Harvard Business School. She, it's good to have you on the program. again? Well, thanks for having me. Here we have yet another shock to the global supply chain. I guess I wonder, as the expert in the field, what you thought when you read the news the other day? Well, when we first had some of these shocks, it's like, how do I work my way around some of these things? And now we're into a phase where it's like, I don't know what's going to happen

any given day. But what I have to do is I have to think more about how do I design my supply chains, how do I design my world to be more resilient? because now, you know, the surprises aren't so much a surprise anymore. It's like, okay, you know, here's Monday. What's in store for us today? Oil aside, tell me how this is going to ripple through the global supply chain. There are obviously shipping considerations, insurance considerations, hazard considerations, all of those things.

Well, with oil, what we're concerned about is what happens if Iran closes the straight of our moods, right? Because 15 million barrels a day comes through there. But we already saw what happened, you know, when the Suez was effectively closed. That removed like 12% of global shipping capacity, right? I mean, that shows you what happens when you have all these choke points around the world, whether it's the Strait of Hormuz or it's the Malacca Straits or it's, you know, around into the Red Sea, into Suez. Okay, so all these choke points just make life more unpredictable and just make it more challenging.

Do me a favor and take off your academic hat and put on the hat of the guy who, last I spoke with you, you had been in business doing operations and those sorts of things for 30 some odd years. How do you plan for those surprises that aren't really surprises anymore? They're just kind of like your every day. Well, you might have more inventory, for example, right? Because you just never know when you're going to get cut off for some unexpected reasons. I mean, if there's anything we've learned in the last couple of years, it's like having a single source of supply, that's not so good, right? You know, so we'll see what happens with the price of oil, right? But, you know, the problem with commodities like that is it just feeds into so many other things, transportation costs, raw material cost.

And, you know, the other thing, look at what's happened to global air transportation, you know, with basically the shutdown of Dubai, shut down of Abu Dhabi. okay, and that's not only passengers, that's a huge amount of disruption, but, you know, Emirates Skycargo, huge operator, right? Those types of effects, those will ripple through as well, right? And, you know, they carry a lot of fresh fruits and vegetables, for example, out of Africa, among other things, right? So all those things, we're going to see those effects play out, you know. What I hear you saying, as you listen to all of those things, Professor, speaking as a humble

American consumer, is that costs, generally speaking, are likely to rise, my prices? Well, the first place we'll see it probably will be gasoline prices. But then, you know, a lot of these things take a while to work their way through the system, right? So, for example, for most of last year, when we had imposition of a lot of tariffs, we also had a lot of people front running and loading up an inventory to try to beat those tariffs. And then, you know, the latter part of last year was the giant de-stock. cycle where people burned off that inventory. And now it's like, well, how much do I have to restock?

Okay, but it's going to be at higher prices. So, you know, it's hard for me to think how we're not going to see price increases just because all the input costs are going up. And if nothing else, we're going to pay more for shipping just for insurance. Right. Willie Shee, he's at Harvard. Professor Shee, thanks for your time, sir. I do appreciate it.

Hey, thanks for having me. This final note on the way out today in which there is always a housing angle. You remember last week I told you the average yield on a 30-year fixed-rate mortgage was down under 6% for the first time in two and a half-ish years? Well, you know where this is going, right? 6.13% today, according to mortgage news daily. It's not like the war directly affects those rates, but they do track the 10-year Treasury pretty closely, the yield on which Justin was telling us earlier rose today.

Amir Babawi, Caitlin Ash, John Gordon, Noia Carr, and Stephanie Seek are the Marketplace editing staff. Kelly Silvera is the news director. I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM. Hey, David Brancaccio here. I hope you're well and that your passport is up to date because I am hosting a trip to Italy this fall, and you, you are invited. stay at a world-class Tuscan villa and step into the world of the Medici, the formidable family whose influence and power helped give rise to the Renaissance and the art we still celebrate today, and not to mention the banking system. We're going to visit the world's oldest bank, swim in the thermal spa waters in Monte Cattini, and take in the art of the Uffizi.

All of this, and then we'll try to put it all into context with great conversation over even better meals and wine tasting. Please join me and know this. Buying into this trip will provide essential support for public media. Discover more about this fall's Tuscany Adventure at Marketplace.org slash travel to reserve your spot today. That's Marketplace.org slash travel.