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Wall Street initially priced in a swift US bombing campaign as President Trump made his move against Iran. What investors got was an oil war.

Stocks pulled back again this week as oil prices remained elevated and the Pentagon again ramped up its capacity to strike at Iran, sending three warships to the Middle East and thousands more Marines.

Iran, meanwhile, remains defiant, vowing to sustain attacks on Gulf nations and maintain a menacing hold on the Straight of Hormuz.

Three weeks into the war, the prospect of the US taking over a key Iranian energy terminal — in an effort to get oil shipments flowing again — highlights the rapidly expanding scope and stakes of the conflict.

Some analysts warned that investors have still not come to grips with the risks. Under threat of attacks on crucial infrastructure and the disruption that has already rocked energy markets, an understanding of the war as a reverberating, economic power struggle, rather than a brief and contained military campaign, is coming into view.

Reconciling what was once thought of as a compressed timeline of limited consequence with more wide-ranging ramifications is part of the narrative unfolding on Wall Street.

Now a key challenge remains: How should investors gauge the impact of an oil shock with an uncertain outcome? Here are three questions to think through the war in Iran:

Read more: How oil price shocks ripple through your wallet, from gas to groceries

If the strait remains closed to passage for a sustained period of time, the economic disruption could trigger a global recession.

Oil officials in Saudi Arabia told the Wall Street Journal that prices could soar past $180 per barrel if the waterway remains under threat into late April. Economists say that $150 is viewed as a key pain threshold that would lead to curtailed demand and a slowdown of commercial and social activity in the US.

With such a timeline in mind, the White House is under pressure to urgently open the strait back up. But rather than seek an off-ramp by declaring some sort of military victory and withdrawing forces, the US appears to be escalating, alongside Iranian attacks on Gulf neighbors.

The ‌Trump administration ‌is considering ​plans to capture or isolate ‌Iran's key oil hub, Kharg Island. With control over that key territory, the thinking goes, Washington could negotiate with Tehran to reopen the strait and perhaps work toward a lasting diplomatic resolution. However feasible such a plan may be, another off-ramp for the US would be accepting the next iteration of the Iranian regime as a more tolerable geopolitical partner than the last ayatollah, akin to the situation in Venezuela.

Earlier this week, US central bankers voted to keep interest rates on hold, with Chair Jerome Powell noting that it's still too early to tell what the war's economic impacts will be. But his cautious tone at the press conference nudged Wall Street to reassess the timeline for rate cuts.

As Bank of America analysts wrote in a note on Friday, "The Fed delivered a hawkish hold" as it prepares for another supply shock. While the White House can lift sanctions and go to the basement for the reserves, the Fed needs to wait and see.

The Fed revised inflation forecasts higher for 2026 and 2027, and several governors expect no more cuts this year, even as the average 2026 cut projection among the board remained at one.

Read more: How jobs, inflation, and the Fed are all related

Some analysts say that the Fed could start raising rates again sometime in 2027. Even before the Iran war, the central bank was in a difficult position. Inflation remains stubbornly elevated just as the labor market flashes signs of weakness.

But instead of juicing the economy with a rate cut this summer, markets now expect the Fed to hold steady, confronted with risks to slowing growth and rising inflation. In that situation, Fed thinking advises yet another round of "watch and wait."

US consumers are close to facing a national average price of $4 per gallon of gas, according to data from AAA. So the immediate impacts are real and squeezing households on the lower end of the income spectrum.

But the conflict underscores how economic consequences in the US can turn out to be minimal in the abstract, aggregate sense, but detrimental for individuals.

Lori Calvasina, head of US equity strategy research at RBC Capital Markets, said in a note on Friday that, in a survey of corporate commentary, several firms noted how resilient the economy was before the conflict. One company, she said, pointed out that people at the top of the K-shaped economy are more immune to these kinds of destabilizing events. Others highlighted how consumer confidence is continuously tested or desensitized.

"What we read adds to our understanding of why the US equity market has been fairly resilient since the Iran strikes, and also leads us to believe that it may simply take more time for the equity community to fully understand the impacts from an extended conflict," she said.

If the past few years have taught us anything, it's that we have a durable American consumer and a forgiving stock market. But this time, the potential range of consequences feels exceedingly wide.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

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