A sustained rally in oil prices could trigger a recession in the US by weakening consumer spending and tightening financial conditions. According to a Wells Fargo report, the US economy is on the verge of an energy shock amid sluggish job growth and headline inflation expected to exceed 3%.

Modeling confirms that a 50% surge in commodity costs cuts real household spending by about one percentage point. Such dynamics almost entirely offset the effect of existing tax breaks intended to stimulate domestic demand.

The report identifies a Brent price of $130 per barrel as a critical threshold for maintaining current consumption rates. If global oil prices remain at that level for several months, businesses and households will have to revise investment plans and cut hiring.

An energy shock turns into a downturn if it is persistent, and household income growth deteriorates further. Falling real wages drag down consumption, which ultimately leads to declines in investment in fixed capital.

Being a net energy exporter gives the US some resilience compared with import-dependent countries. Nevertheless, rising producer profits and investment in infrastructure will occur more slowly than the erosion of household purchasing power.