DEMAND DESTRUCTION \dɪˈmænd dɪˈstrʌkʃən\ n : The process by which persistent high prices or limited supply cause a permanent or sustained decline in the willingness or ability to purchase a good or service.

At its linguistic core, the two-word phrase “demand destruction” feels severe, harsh, maybe even violent.

In practice, that’s not far off: It means that the magnitude of a price shock can be so large, so persistent and so painful that spending behaviors shift – sometimes to the point where they permanently alter the course, the structure and the stability of a sector or an entire economy.

Earlier this month, the International Energy Agency warned that in the wake of the “most severe oil supply shock in history … demand destruction will spread as scarcity and higher prices persist.”

In the US, this “destruction” has already started to unfold.

Fast-rising gas prices have quickly eaten away Americans’ hard-earned pay and tax refunds – landing the heaviest blows on those who can least absorb them.

Inflation has jolted higher, wage growth sharply slowed and consumer sentiment slumped, a potential harbinger of further fallout to come.

American consumers have remained resilient thus far. But economists warn that the longer the Iran war keeps the critical Strait of Hormuz blocked to oil tankers and cargo ships, the greater the danger of drastically worse outcomes.

“Time is not the ally of the American economy,” said Joe Brusuelas, chief economist for RSM US, an accounting and consulting firm.

A chain reaction of destruction

Energy touches every single household, industry and sector.

“There’s more than a billion prices in the US economy, so demand destruction is going to be different by industry, by income cohort,” Brusuelas said.

Mapping out seemingly abstract consequences from a conflict with no certain duration or outcome is complex.

However, Brusuelas and fellow RSM economist Tuan Nguyen have sought to do just that. In a recent note, they used past oil shock outcomes to help chart out potential paths for Americans and the broader economy.

The erosion of Americans’ hard-earned pay can mean fewer restaurants frequented, trips taken, cars bought and houses sold; dampened business investment and drops in demand can lead to layoffs, heightening the economic pain.

RSM laid out the potential chain reaction:

The economic outcomes are looking better now than they were at the start of the war, said Nancy Vanden Houten, lead US economist at Oxford Economics.

Oil prices had come down off their highs; the ceasefire has led to some sense of stabilization; and consumers, helped in part by heftier tax refunds and still-strong stock portfolios and home values, have managed the jump in gas prices, she said.

“It looks like what we thought could be a worst-case scenario will be avoided,” she said. “But then again, things could turn around very quickly.”

Ultimately, how long consumers and the broader economy will be able to hold up will depend on how quickly the conflict is resolved and ships move more freely through the strait, she said.

Bryan, 30, an auto industry engineer, is already starting to drive less and work from home when he can. He’s cut back on going out with friends. He’s parked emergency funds into T-bills, and he’s buying more groceries at wholesale clubs like Costco and BJ’s.

His plans for a kitchen remodel and the purchase of a car with a V8 engine have been shelved.

He can trim and cut back for another six months; if gas prices remain this high and other costs rise sharply, he’d likely forgo vacations, seek a more permanent remote work arrangement, and look into purchasing a hybrid vehicle.

The paths forward

Even if the war were to end immediately, the economic repair won’t be swift.

“Turning off the oil and turning it back on is not like turning on your lights,” Brusuelas said. “At best, we’re going to be six months before we have a good sense of how close we are to pre-war production levels across the Persian Gulf.”

It could take years in some cases for production to fully rebound, he said.

And the effects of higher prices can linger.

“Remember when we shut down the supply chains in February, March 2020? We didn’t really see an increase in inflation until April 2021,” he said. “And then we were just starting to see the pass-through of tariffs that started in April 2025 at the end of last year and at the turn of this year.”

Will, who is in his late 40s, has been driving for Uber after his biotech consulting work dried up because of federal funding cutbacks and economic uncertainty. At the grocery store, he’s been buying more store brands and eliminating the ‘nice-to-haves’ to focus on the ingredients needed for meals.

With two kids in daycare, he can’t afford to stop driving, but he’s stopped taking rides that are too far away in miles or time.

He’s getting by, for now; but the uncertainty and the worry are building. A medical emergency or a car issue would trigger a “significant financial hardship,” and he would likely have to tap retirement funds.

Supply shocks to oil and critical materials such as fertilizer are rippling through the US economy and could push prices higher for a variety of goods and services, Brusuelas said.

The high prices for the diesel that fuels trucks and tractors can portend higher grocery prices. And that’s not even factoring in the disruption to nitrogen-based fertilizers, which could affect farmers’ planting decisions and the food that could be available come fall.

“It can take the better part of six months, (or) even longer, to feel the full impacts of this shock reflected in food prices,” David Ortega, a food economist and professor at Michigan State University, told CNN.

Some Americans may be able to bounce back from the sharply higher gas costs, the fuel surcharges tacked onto other items and other knock-on price effects. But not everyone is able to recover.

“There’s demand destruction that started down market that can’t be undone,” Brusuelas said.

By “down market,” Brusuelas is referring to Americans in the lowest two income quintiles – households with no emergency savings and those with little-to-no wiggle room in their budgets.

Sian, 59, has no option but to drive to her multiple jobs across the sprawling Phoenix metro area in Arizona – there’s no carpool across the open desert to her graveyard shift at a shipping company. She’s stopped making retirement contributions, is buying less at the grocery store and started canceling medical appointments.

She’s asking for more hours at her retail job and making a gameplan for the gas it would take to find potential corporate clients for her cleaning business. Without more clients, she’s worried she’ll have to close her business because she can’t afford the insurance.

Lower-income households especially will have to manage deep cuts to their disposable incomes until prices stabilize, Brusuelas said.

That’s not a return to the status quo.

It’s, yet again, a new normal.

“There’s a saying my older relatives who lived in the ’70s (during an energy crisis) had, which is: ‘The best you can hope for is to keep up, and nobody ever quite keeps up,’” said Bryan Pingle, a 30-year-old auto industry engineer who lives in Detroit. “A lot of people are starting to permanently trade down in terms of their standard of living; and they’re choosing to consume less so they can keep up – if they can.” (CNN)

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