The situation: The war in Iran is increasing the risk of stagflation—a toxic mix of rising prices and unemployment that could pose significant challenges for many mid-market retailers and restaurants.

Inflation risks: Rising prices are one side of the stagflation coin, with energy as the immediate accelerant. Damage to oil and gas infrastructure, combined with disruptions to shipping through the Strait of Hormuz, has pushed prices sharply higher.

Brent crude, a global oil benchmark, flirted with $100 a barrel on Monday for the first time in nearly four years. That’s about 39% higher than before the United States and Israel began attacking Iran on February 28 and more than 65% above the level at the start of the year.

That spike is already filtering through to consumers. The national average gas price hit $3.478 per gallon on Monday, up 58 cents in just one month, per AAA.

The Strait of Hormuz remains a critical choke point. Roughly 25% of global maritime oil trade, 20% of liquefied natural gas shipments, and about 33% of the world’s fertilizer shipments pass through it, according to Kpler. With traffic severely constrained, the ripple effects are likely to extend from fuel and food to cookware and apparel.

Labor market strains: A slowing labor market is the other side of stagflation. The US economy added just 181,000 jobs last year, per the US Labor Department, the weakest year since the pandemic.

And the market is losing what little momentum it had. The US shed 92,000 jobs in February, a far cry from the 50,000 gain analysts expected. The US has now posted job losses in three of the past six months.

Why it matters: The conflict adds another challenge to an already difficult economic environment.

• Even before the war began, consumers expected inflation to be 3% over the next year—down slightly from 3.1% in January but still well above the Fed’s 2% target—per the Federal Reserve Bank of New York survey conducted from February 2 to 28.
• At the same time, respondents saw lower odds of finding a job within three months if they lost their current one. Expectations of voluntarily quitting fell below 16%, the lowest level since at least 2013.

When consumers feel pressed, they grow increasingly selective about where and when they spend. That puts pressure on retailers and restaurants not just to promote value but to clearly articulate why they deserve a customer’s limited dollars.

Implications for retailers and restaurants: Retailers and restaurants with distinct positioning—whether rooted in price, quality, convenience, or experience—will likely get by, but those without it may find themselves closing their doors.

The squeezed middle is especially exposed. Black Box Intelligence estimates that roughly 9% of full-service restaurants are at risk of closure this year after losing 30% or more of peak sales in 2025. A similar dynamic is playing out in retail, where companies that are neither value-focused nor premium-oriented are most vulnerable in a market that’s increasingly unforgiving of sameness.