Here is a salient place to start regarding the economic impact of the Donald’s misbegotten war on Iran: To wit, approximately 7 billion ton-miles of freight moves by truck each and every day in the USA, which heavy truck fleet consumes upwards of 2.9 million barrels per day (mb/d) of diesel fuel.
Alas, the price of diesel fuel was about $3.55/gallon both a year ago and as of early January 2026, but has since soared by more than+$2.00 per gallon to $5.60. That’s a 56% rise in the cost of pumping goods and commodities through the arteries of the US economy. On an annualized basis, the diesel fuel bill for the US truck fleet went from $155 billion per year to $250 billion per year at current oil prices.
The big question, of course, is through which channel these drastically higher fuel acquisition costs will be absorbed – in higher prices or reduced output? And that pertains not just to the microcosm of the trucking sector, but the entire GDP now being battered by the Donald’s elective war-based dislocation of the world’s 175 million BOE/day oil and natural gas markets.
We’d bet it will be a combination of both inflation and deflation, otherwise known as stagflation. The mix of these outcomes depends upon supply and demand conditions in individual sectors of the economy in part, but also, and ultimately and more importantly, on the Fed. That is, whether the nation’s central bank pumps incremental demand into the economy via credit expansion with a view to “accommodating” the soaring price of energy today, and, soon, food and other commodity inputs to GDP, too; or holds firm on the printing press dials and allows the now cresting energy and commodity shocks to work their way through the interstices of the $30 trillion US economy.
Of course, during the previous comparable petroleum supply disruption during the 1970s, the Fed made the huge mistake of printing the money to counteract what was a “supply shock” in the form of soaring petroleum prices. But that led – just as sound money advocates had always held – to double digit increases in the general price level by the end of the decade, and thereafter the trauma of the Volcker administered application of the monetary brakes.
With the Fed fixing to welcome a new Chairman, as today’s congressional hearings remind, it is therefore a question of whether or not the Kevin Warsh Fed will want to take its place in the monetary policy villains gallery along with Arthur Burns and the hapless William G. Miller.
We think not. We actually believe that for the first time since Volcker, we are about to get a Fed chairman who understands the requisites of sound money and noninflationary finance, as well as the profound error of Keynesian demand management at the central bank.
And not only that. As far as we can tell, he also has the experience from his prior service on the Fed during the so-called Great Financial Crisis and the cajones to lean heavily against the supply shock now emanating from the Persian Gulf.
Of course, in a perfect world of honest money and free markets – including in the production of money and credit – there wouldn’t be any central bank “leaning” to do. Under an honest money gold standard, for instance, the impending petroleum supply shock would cause relative price changes, thereby generating a sharp curtailment of activity in petroleum intensive sectors and the reallocation of activity, output, jobs and capital to less petroleum intensive sectors. That’s what the miracle of free markets do when they are allowed by the state to operate.
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