The U.S. federal government is modeling a scenario with crude oil at $200 per barrel to see what the potential fallout of such a price surge would be for the U.S. economy. The news, reported by Bloomberg and coming from unnamed officials, comes on top of contradictory messaging from the Trump administration, with the latest signals pointing towards a push for a ceasefire.

Analysts started talking about the potential rise of Brent crude all the way to $200 earlier in March when it became clear the Iran war was not going to be over in a few days. In that worst-case scenario, the impact on the global economy would be devastating, with developing nations bearing the brunt of the crisis due to their lower financial reserves. Yet wealthy nations are also in for a lot of pain should oil prices move a lot higher, especially in Europe.

In fact, the pain is already being felt, even though Brent is nowhere near $200. Europe never really had a chance to fully recover from its last energy crisis, and its import bill has only risen since 2022, leaving the EU with a lot less room for maneuver. So, European nations are already hurting with Brent at $100 per barrel, and so is the United States, despite its much greater resilience thanks to its own oil and gas production.

Related: 3 Defense Stocks To Replenish America’s Depleting Arsenal

Prices at the pump have gone up by some 30% in the U.S. on average since the war started, with the average as of March 25 at $3.982 per gallon, according to AAA data. That’s up from a national average of $3.139 per gallon a year ago. Fuel inflation is the fundamental actor to watch when planning for a response to an energy crisis since fuel prices underlie the prices of everything else.

For now, the Fed has not indicated it needs to act, with Chair Jerome Powell saying the effect of the war on the U.S. economy would likely only be temporary. To be fair, Powell also downplayed the effects of the pandemic lockdowns on the economy for a long time before admitting that said effects were more prolonged than initially expected. This might be why this time the chair of the U.S. central bank hedged by saying “we just don’t know” how it would all end.

Meanwhile in the EU, the president of the European Central Bank suggested this week the bank could hike rates if the war continues, even if the inflation increase it drives is “not too persistent”.

Modeling the effects of an energy crisis on the economy, per the Bloomberg sources, is standard practice that is part of the federal government’s response to any such crisis. It does not amount to a prediction, the sources also said, explaining that the purpose of the modeling exercise was to ensure the administration was prepared for any eventuality, including an extended war and the resulting extended energy supply crunch.

The conflicting messages coming out of the White House are not exactly helping. President Trump has been causing market swings with his social media posts, the latest messaging containing both reports of a ceasefire plan, negotiations with Iran—which Iran has rejected as untrue—and reports of more U.S. troops being sent to the Middle East, suggesting preparations are underway for a prolonged conflict and possibly a ground offensive.

Ultimately, however, it is clear that the size of the impact of the war on any economy would depend on how long the fighting continues and how long energy infrastructure in the Persian Gulf remains a target for attacks. The longer it all goes on, the worse the impact.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com

Second Tanker Hit in Weeks as Black Sea Drone Strikes Russian Oil Cargo

Iran Earning $139 Million a Day From Oil as Hormuz Crisis Locks Out Rivals

Ukraine Knocks Out 40% of Russia's Oil Export Capacity in Baltic Drone Strike

Oilprice Intelligence brings you the signals before they become front-page news. This is the same expert analysis read by veteran traders and political advisors. Get it free, twice a week, and you'll always know why the market is moving before everyone else.

You get the geopolitical intelligence, the hidden inventory data, and the market whispers that move billions - and we'll send you $389 in premium energy intelligence, on us, just for subscribing. Join 400,000+ readers today. Get access immediately by clicking here.