March 20, 2026
War with Iran: Trump is playing with fire
No full-blown energy crisis yet, but oil prices are starting to bite.
To the point!
Almost three weeks ago, the U.S. and Israel launched military strikes against Iran – even though both sides had only just been at the negotiating table together. What the White House seems to have imagined as a quick, decisive operation, Venezuela-style, has turned into a grinding conflict. The outcome is still uncertain. Washington appears to have badly misread the Iranian government’s willingness to dig in and keep fighting.
For the global economy, the main risk lies in elevated oil prices, which at times have climbed above USD 100 per barrel after Tehran – contrary to what Trump and his team had banked on – managed to shut down traffic through the Strait of Hormuz. Roughly one-fifth of the world’s seaborne crude exports passes through this chokepoint. That is fueling concerns that the world could slide into a recession, with inflation dynamics uncomfortably reminiscent of the 1970s.
Fig. 1: Loss of supply of oil
million barrels per day
The biggest oil supply shock on record
As chart 1 makes clear, those worries are not plucked out of thin air. No conflict in the modern Middle East has ever taken anything close to as much crude off the market as the current war with Iran. That said, the global economy is far less oil-intensive than it was during the first oil crisis. Back then, it took roughly one barrel of oil to generate USD 1,000 of GDP (in constant 1995 dollars). In the current decade, it takes only about 0.4 barrels to produce the same output (see chart 2). Gains in energy efficiency, a shift toward less energy-hungry sectors and the rise of alternatives such as renewable energy have all driven that change.
Advanced economies also maintain strategic petroleum reserves sufficient to cover at least ninety days of net imports. Even following the International Energy Agency’s recommendation to release record volumes from those reserves has not been enough to cap the surge in oil prices. The reason is straightforward: drawing down stockpiles can buy some time, but it cannot fix the underlying supply gap created by the war.
Fig. 2: Global oil intensity of production
barrels per USD 1.000 GDP in 2015 prices
Why the war with Iran may not last much longer
In response to the supply shock, LBBW Research has raised its oil price forecasts. We now expect Brent to trade at around USD 70 per barrel by year-end. By mid-2027, prices are projected to ease further to about USD 65 – well below today’s USD 100. The key assumption is that the war will not drag on through the summer. Iran’s military capabilities have likely taken a substantial hit from the heavy bombardment. More importantly, Donald Trump has every incentive to declare victory sooner rather than later. The absence of a clearly defined strategic objective from the outset makes that easier: as he did last summer, he can simply announce that the mission of degrading the mullahs’ military machine has been accomplished. Anything more – even if regime change was occasionally floated – can be quietly dropped.
Trump’s MAGA base is sharply divided over foreign adventures. His presidential run was built on an isolationist promise to pull the U.S. back from global power politics and finally put “America first”. In office, though, he has ordered strikes on more countries than any of his predecessors (Syria, Iraq, Yemen, Somalia, Nigeria, Venezuela and now Iran, while rattling sabers at Greenland, Colombia, Mexico and Cuba). High-profile MAGA figures such as Tucker Carlson, Megyn Kelly and Steve Bannon have all come out against the war with Iran.
Gas prices at the pump are highly political in the U.S.
What may matter most to Trump, however, is that he cannot afford to further damage Republicans’ already bleak chances of winning both chambers of Congress. A Democratic sweep would all but guarantee a third impeachment attempt, and a Congress no longer inclined to rubber-stamp his decisions.
Fig. 3: Regular petrol average price per gallon
USD
⬤ {series.name}: {point.y}
There is no price in U.S. politics more sensitive than what Americans pay for a gallon of gas. Rural voters – a core Trump constituency – are hit especially hard. Even before the war, most households were already complaining about the high cost of living, and it is getting harder to blame that on Joe Biden. Trump will therefore do everything he can to ensure that the spike in gas prices (see chart 3) is history by the time voters head to the polls for the midterms. Anything else would be political suicide.
Dr. Moritz Kraemer, Chief Economist / Head of Research at LBBW
Download To the point!
-
279.1 KB | March 20, 2026
This publication is addressed exclusively at recipients in the EU, Switzerland, Liechtenstein and the United Kingdom.
This report is not being distributed by LBBW to any person in the United States and LBBW does not intend to solicit any person in the United States.
LBBW is under the supervision of the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurhein-dorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany).
This publication is based on generally available sources which we are not able to verify but which we believe to be reliable. Nevertheless, we assume no liability for the accuracy and completeness of this publication. It conveys our non-binding opinion of the market and the products at the time of the editorial deadline, irrespective of any own holdings in these products. This publication does not replace individual advice. It serves only for informational purposes and should not be seen as an offer or request for a purchase or sale. For additional, more timely in-formation on concrete investment options and for indi-vidual investment advice, please contact your investment advisor.
We retain the right to change the opinions expressed herein at any time and without prior notice. More-over, we retain the right not to update this information or to stop such updates entirely without prior notice.
Past performance, simulations and forecasts shown or described in this publication do not constitute a reliable indicator of future performance.
The acceptance of provided research services by a securities services company can qualify as a benefit in supervisory law terms. In these cases LBBW assumes that the benefit is intended to improve the quality of the relevant service for the customer of the benefit recipient.
Additional Disclaimer for recipients in the United Kingdom:
Authorised and regulated by the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frank-furt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.
This publication is distributed by LBBW to professional clients and eligible counterparties only and not retail clients. For these purposes, a retail client means a person who is one (or more) of (i) a client as defined in point (7) of Article 2(1) of the UK version of Regulation (EU) 600/2014 which is part of UK law (UK MiFIR) by virtue of the European Union (Withdrawal) Act 2018 (EUWA) who is not a professional client (as defined in point (8) of Article 2(1) of UK MiFIR); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the FSMA) and any rules or regulations made under the FSMA (which were relied on immediately before the 31 December 2020 (IP completion day)) to implement Directive (EU) 2016/97 on insurance distribution, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of UK MiFIR; or (iii) not a qualified investor as defined in the UK version of Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, which is part of UK law by virtue of the EUWA (the UK Prospectus Regulation).
This publication has been prepared by LBBW for information purposes only. It reflects LBBW’s views and it does not offer an objective or independent outlook on the matters discussed. The publication and the views expressed herein do not constitute a personal recommendation or investment advice and should not be relied on to make an investment decision. The appropriateness of a particular investment or strategy will depend on an investor’s individual. You should make your own independent evaluation of the relevance and adequacy of the information contained in this publication and make such other investigations as you deem necessary, including obtaining independent financial advice, before partici-pating in any transaction in respect of the financial instruments referred to this publication herein.
Under no circumstance is the information contained within such publication to be used or considered as an offer to sell or a solicitation of an offer to buy any particular investment or security. Neither LBBW nor any of its subsidiary undertakings or affiliates, directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for/or makes any representation or warranty, express or implied, as to the truth, fullness, accuracy or completeness of the information in this publication (or whether any information has been omitted from the publication) or any other information relating to the, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this publication or its contents or otherwise arising in connection therewith.
The information, statements and opinions contained in this publication do not constitute or form part of a public offer. LBBW assumes no responsibility for any fact, recommendation, opinion or advice con-tained in any such publication and expressly disclaims any responsibility for any decisions or for the suitability of any security or transaction based on it. Any decisions that a professional client or eligible counterparty may make to buy, sell or hold a security based on such publication will be entirely their own and not in any way deemed to be endorsed or influenced by or attributed to LBBW.
LBBW does not provide investment, tax or legal advice. Prior to entering into any proposed transaction on the basis of the information contained in this publication, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transac-tion.
