The recently released UCLA Anderson Forecast identifies soaring oil prices caused by the conflict involving Iran as the primary economic risk for the United States, overtaking tariffs. The disruption in oil shipments through the Strait of Hormuz has led to a significant inflationary shock, pressuring prices while dampening expected economic growth.
Researchers estimated that about 20 million barrels of oil per day—representing roughly one-fifth of global consumption—have been affected by the ongoing conflict. As a result, inflation is expected to peak around 4.5%, while unemployment may rise modestly to the same rate. The report lowered projections for U.S. gross domestic product growth to approximately 2.1% this year, reversing earlier expectations for acceleration.
Despite these challenges, the forecast highlights continued resilience in the national economy, supported by sustained investment in artificial intelligence, fiscal stimuli, and tax reductions. The technology sector’s AI-related infrastructure spending could near $700 billion this year, providing a significant counterbalance to higher energy costs.
California’s economy, while outperforming national averages in income and output growth, faces hurdles including a sluggish labor market, elevated fuel prices, and ongoing housing shortages. The state’s unemployment was reported at 5.3% in April, with forecasts suggesting it will average 5.5% through 2026. Employment growth in California is expected to remain minimal, around 0.2%, reflecting challenges such as constrained housing construction due to high mortgage rates, labor scarcity, and rising building expenses.
Industries tied to technology, artificial intelligence, aerospace, and defense are seen as bright spots that could sustain economic activity within the state. Nevertheless, California’s reliance on ports and logistics, sectors vulnerable to global supply disruptions, adds to its economic fragility amid rising fuel costs.