In a surprising twist, the ongoing conflict with Iran has sparked an intriguing debate among economists, with a unique focus on its potential impact on the California economy. While the idea of war typically evokes concerns about economic downturn, a group of economists from Chapman University presents a different perspective. They argue that a short war with Iran could actually boost the U.S. economy, with a particular emphasis on the benefits for Southern California's military contractors.
The War's Economic Ripple Effect
The Chapman economists, including James Doti, Raymond Sfeir, and Fadel Lawandy, predict that an Iran war lasting around 60 days could increase the U.S. real gross domestic product (GDP) to 2.2% in 2026, up from their earlier estimate of 2%. This prediction is based on the assumption that increased defense spending and a larger federal deficit would offset the negative impact of higher oil prices.
A Shift in Oil's Influence
One of the key arguments put forth by Doti is the changing role of oil prices in the U.S. economy. He suggests that the impact of oil prices on economic growth is less significant today compared to past decades. This is due to the U.S. becoming a net exporter of refined petroleum products, such as gasoline, diesel, and propane. Thus, the economists believe that the potential rise in oil prices during the Iran conflict may not be as detrimental as one might expect.
Divergent Perspectives
However, not everyone shares this optimistic view. Sergio Cecutta, managing partner at SMG Consulting, an advisor for startups and aerospace companies, raises concerns about the potential impact of rising inflation on consumer spending. He argues that if gasoline prices continue to surge, consumers may start to curb their spending, which could have a significant impact on the economy.
The Gas Price Conundrum
As of March 20, 2026, gas prices in California averaged $5.657 per gallon, a nearly $1.06 increase from the month before the war began. This increase has been felt across the state, with prices rising over a dollar in Los Angeles, Orange, Riverside, and San Bernardino counties. Nationally, prices are at $3.912 per gallon, also up nearly a dollar from the previous month.
Defense Contractors' Potential Windfall
Despite the concerns about rising fuel costs, Cecutta believes that Southern California's defense contractors could indeed benefit from increased military spending. He highlights the role of startups in the region, which are helping the government create cheaper munitions, addressing the challenge of balancing sophisticated weapons with cost-effectiveness.
A Diverse Range of Contractors
Beyond Anduril Industries and SpaceX, Cecutta mentions several other defense contractors that could see benefits. These include Northrop Grumman, Lockheed Martin, Rocket Lab, Shield AI, and AeroVironment, all of which have significant operations in Southern California. These companies are well-positioned to capitalize on the increased defense spending, particularly as the Pentagon requested an additional $200 billion to fund the war effort.
A Cautious Approach
Interestingly, Southern California's military contractors have declined to comment on the economic benefits of the Iran war. An Anduril spokeswoman stated that "it is not useful to speculate" about their possible involvement. This cautious approach is perhaps understandable given the sensitive nature of the situation.
Anduril's Ambitious Plans
Despite the ongoing war, Anduril Industries has announced plans for a major new campus in Long Beach and is currently raising $4 billion in capital to pursue an array of ambitious projects. The company's revenue is expected to double to around $2 billion, driven by U.S. and allied defense contracts. This growth highlights the potential economic benefits that Southern California could reap from the increased defense spending.
A Broader Perspective
While the Chapman economists' predictions may seem counterintuitive, they highlight the complex interplay between geopolitical events and economic forces. The potential boost to the California economy, driven by increased military spending, underscores the intricate web of connections that shape our world. It also raises questions about the ethical dimensions of economic growth in the context of war. As we navigate these complex issues, it's essential to consider the broader implications and the human cost that often accompanies such economic gains.
