Economists estimate U.S. recession probability between 10% and 40% as energy costs stack on top of a year of trade policy volatility.
The Iran conflict, now in its fifth week, is compounding existing tariff pressures on U.S. small businesses through surging oil prices, disrupted shipping lanes, and rising input costs, adding a second simultaneous cost shock to companies that have spent the past year absorbing the most volatile trade environment in nearly a century.
Brent crude has risen more than 25% since U.S. and Israeli strikes on Iran began February 28, according to market data tracked by Goldman Sachs Research. The Strait of Hormuz, through which approximately 20% of global crude oil and liquefied natural gas normally flows, remains functionally impaired by the conflict, according to the Center for Strategic and International Studies.Goldman Sachs estimates that traders are demanding roughly $14 more per barrel than before the conflict to compensate for increased risk. The national average gasoline price has risen to $3.88 per gallon, with California prices exceeding $5, according to the Foreign Policy Research Institute.
Double Pressure on Working Capital
The energy shock arrives as small businesses are already stretched by tariff costs. The National Small Business Association’s 2026 Trade Impact Survey found that 61% of small businesses report tariffs have had a negative effect on operations. Average monthly customs payments for affected businesses tripled between January 2025 and January 2026, rising from $8,400 to $27,200.
Small businesses are disproportionately exposed to simultaneous cost pressures, according to Brett Massimino, associate professor and chair of supply chain management at Virginia Commonwealth University’s business school.
“Small businesses don’t have the margins or the reserves to absorb those kinds of cost increases,” Massimino told Fortune. “They’re faced with a dilemma of whether to expedite shipments that might be delayed, or deal with the shortages.”
Unlike larger corporations that can hedge fuel costs, diversify supply chains across regions, and access credit facilities to bridge working capital gaps, most SMBs operate without those buffers. For businesses that import goods, the combination of tariff duties paid upfront at customs and rising freight and fuel costs creates a compounding cash flow squeeze, both hit working capital before the goods generate any revenue.
Recession Probability Rising
Wall Street forecasters have raised their estimates of U.S. recession risk since the conflict began.
Goldman Sachs increased the probability of a recession within the next 12 months to 30%, citing higher energy prices that would boost U.S. inflation by an estimated 0.2 percentage points to 3.1% by year-end, according to CBS News reporting. EY-Parthenon economists put the probability of a severe downturn at 40%, up from 35% before the strikes, citing persistent inflation driven by the disruption of global oil supply.
“The combination of tighter financial conditions, more uncertainty and higher inflation is going to erode growth,” EY-Parthenon chief economist Gregory Daco told CBS News.
Morgan Stanley has flagged the risk that the Federal Reserve may be forced to pause planned rate cuts, as policymakers weigh inflation concerns against slowing growth, a scenario that would keep borrowing costs elevated for small businesses already facing tighter margins.
Businesses may also delay planned investments if elevated energy prices persist. “If you are trying to plan, there’s a big difference if oil is at $60 a barrel versus $120, so businesses may put investment decisions on hold until the outlook becomes clear,” Daco said.
What This Means for Small Business Financial Planning
The National Small Business Association reported that monthly tariff payments for affected small businesses tripled between January 2025 and January 2026, with the average monthly customs duty rising from $8,400 to $27,200. For a business importing a container of goods worth $50,000, a 25% IEEPA tariff added $12,500 in upfront cash that had to be paid before the goods were released, working capital that could not be used for payroll, marketing, or operations until the goods were sold, a cycle that typically takes 60 to 120 days.
The replacement Section 122 tariffs at 10–15% are lower than many IEEPA rates. But they stack on top of existing duties rather than replacing them, and they carry a built-in expiration: Section 122 authority limits the tariffs to 150 days, until July 24, 2026, unless Congress votes to extend them.
That 150-day window creates a specific planning horizon. Businesses that rely on annual budgets built before Liberation Day are operating on assumptions that no longer hold. The current environment demands rolling forecasts, scenario modeling for multiple tariff outcomes, extension, expiration, replacement under new authority, and real-time cash flow visibility into how import costs flow through to working capital, pricing, and margins.
What to Watch
The duration of the Strait of Hormuz disruption remains the primary variable for energy markets. CSIS analysts note that resumption of normal seaborne exports, typically 20 million barrels per day of crude and 10 billion cubic feet per day of LNG — will require either a cessation of hostilities or total neutralization of Iran’s ability to disrupt shipping. Some damaged production and processing facilities could take extended periods to repair.
The Section 122 replacement tariffs imposed after the Supreme Court struck down IEEPA tariffs in February expire July 24 without congressional action, creating a second source of planning uncertainty on the same timeline.
For small businesses navigating both cost shocks simultaneously, the environment demands rolling cash flow forecasts and scenario models that account for multiple energy and tariff outcomes, not static annual budgets built on assumptions that no longer hold.Goldman Sachs has projected that in a scenario where Strait of Hormuz flows are fully halted for one month, Brent crude could sustain a $14 per barrel premium. A longer disruption of two months or more could push European natural gas prices above 100 EUR/MWh.
Frak Finance provides fractional CFO, accounting, and strategic financial advisory services to SMBs between $1M and $50M in revenue, including cash flow forecasting, scenario planning, and cost management through economic volatility. Schedule a complimentary consultation or call (773) 658-9688.
