Last year’s One Big Beautiful Bill is set to deliver a powerful fiscal tailwind. Yet this stimulus is at risk of being undermined by higher oil prices resulting from the Middle East conflict, as higher energy prices effectively act as a tax increase on households. If crude prices settle around $90 per barrel, they could fully erode the benefits from the OBBBA.
With the U.S. tax filing season now in full swing, the average taxpayer refund is running well above last year. This is consistent with our forecast that the One Big Beautiful Bill Act (OBBBA) will lift this year’s average tax refund by more than $750 per filer, providing a near-term boost to household consumption. That support, however, risks being offset by the Middle East–driven energy shock.
Higher energy prices effectively act as a tax increase on households. While the conflict remains fluid, the extent of infrastructure damage makes a rapid return to pre-conflict oil prices unlikely. If crude prices settle around $90 per barrel, the resulting increase in household energy costs would fully erode the average household’s OBBBA gains. In a more adverse scenario–where the Strait remains closed, and oil prices stabilize at $125 per barrel–the drag on consumption could jump significantly.
The distributional impact is even more challenging for lower-income households, which face greater exposure to rising energy costs while receiving fewer OBBBA benefits. Oil prices at just $75 per barrel would offset the OBBBA’s gains for the lowest 40% of households.
Heading into 2026, the anticipated OBBBA boost to U.S. consumer spending underpinned a more bullish outlook. A protracted oil price shock, however, threatens to unwind a meaningful share of that short-term fiscal tailwind.
Explore more of the forces driving global markets in our 2Q 2026 Global Market Perspectives, with insights on the themes and implications for the period ahead.
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk.
The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice.
Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Principal Securities, Inc., 800-547-7754, Member SIPC and/or independent broker/dealers. Principal Life, Principal Funds Distributor, Inc., and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.
Principal Asset Management leads global asset management at Principal.®
For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use only in other permitted jurisdictions as defined by local laws and regulations.
In Europe, this communication is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients.
© 2026, Principal Financial Services, Inc. Principal Asset ManagementSM is a trade name of Principal Global Investors, LLC. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc.
5381401
No information