March 09, 2026

The ongoing war with Iran has led to a surge in oil prices and that has prompted a great deal of speculation among analysts and prognosticators. Some have asserted vaguely that a rise in the price of oil to $100 per barrel is a harbinger of a recession. We say vaguely because these statements usually do not clarify whether they fear a rising price, a high price or both. Yet , either interpretation yields a testable hypothesis. We just need to look at the price of oil and real GDP. Our first step in evaluating the two-alternative interpretation of oil price hypothesis was to look for a benchmark price of oil. We also calculated the historical price of the WTI in constant 2025 dollars. This way we surmise , we would be making an apples-to-apples comparison. Figure 1 shows the historical WTI prices in current and constant 2025 dollars. We have also shaded the times during which the WTI constant price exceeded the $100 threshold. Four episodes were identified during which the WTI barrel of oil exceeds $100. The first episode coincides with a recession, the second occurred during a positive and decelerating real GDP and the third denotes a strong and accelerating real GDP. While it is clear to us that the 2009 recession was due to the Financial Crisis , it would be hard to argue that the oil prices caused the Financial Crisis and thus the recession. The same reasoning applies to the pandemic. In only one of the four episodes can one make the case that the high oil prices led to a recession. Jointly the data shows that while it is possible that when the price of a barrel of oil rises to and exceeds $100, the economy could sink into a recession. Yet the outcome is not guaranteed. These episodes illustrate the potential danger of making forecasts based solely on price.

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