High oil prices could tip the economy into a recession by July, according to a Wall Street strategist

With the Iran war approaching the end of its third month, the US economy is likely to start to feel the effects more acutely by early summer, a top strategist says.

Julian Emanuel, the senior managing director in Evercore ISI’s equity, derivatives & quantitative strategy group, said he believes the US economy could tip into a recession by July 4, assuming that oil prices remain elevated.

Should crude remain at or above the range of $93 to $98 a barrel, that gives the US a little more than a month before the damage from the war could finally boil over into the wider economy, he estimated, speaking to CNBC this week.

Americans may start to be more cognizant of how oil is still trading in the triple-digits on Independence Day, Emanuel said, referring to how gas prices are a prominent talking point around the holiday as summer driving season picks up.

“You stay there for three or four months — and we’re giving the economy the benefit of the doubt, like everyone around the table here is — that gets you to the Fourth of July,” he said of the timeline for seeing the economic impact of the war. “That’s when it starts to bite,” he added, suggesting Americans could start pulling back on spending on other areas.

The fear that higher oil and gas prices could eventually hit US consumers has been at the heart of the economic anxiety surrounding the Iran war. Retail spending held solid in April, but consumers are already under more pressure at the pump. The national average price for a gallon of regular gas clocked in at $4.55, well-above the $3.17 average one year ago, according to AAA data.

Meanwhile, consumer and producer price indexes have risen to multiyear highs in the last month.

Emanuel said his team is also eyeing broader consequences from higher oil prices for the stock market. Though Evercore’s base case is that the S&P 500 will end the year at 7,750, implying 4% upside from current levels, Emanuel said that there is a risk that the index could drop to 6,780 in the near-term, implying 8% downside.

Nearer on the horizon is Memorial Day, another holiday during which gas prices are in the cultural zeitgeist. The long weekend coming up will serve as another test for markets. Should Americans’ anxieties about fuel costs increase around the coming holiday, the could help spark send a technical correction in the S&P 500 that sends the index lower by 10%, he speculated.

Should optimism return later in the year, Emanuel said he potentially saw the index ripping to 9,000, overshooting the firm’s year-end target.

“But the oil issue is the sticking point. And the outcome is very, very unknown,” he added.

The economic and market outlook has soured in the US as the Iran war has dragged on. Stocks are being propped up by strong earnings and a slew of dealmaking in the tech and semiconductor sectors, but concerns about inflation are slowly building, with investors dumping stocks in certain sectors alongside government bonds in the last week.